The biggest amendment on foreclosures in the last 20 years

At least that is how some, especially politicians, refer to the latest amendment to Act No. 120/2001 Coll., on Bailiffs and Enforcement Activity (the Enforcement Code), which was published in the Collection of Laws under No. 286/2021 (the “Amendment”). 

The Amendment is extensive, so in this article we do not seek to comment on it in its entirety, but only draw attention to certain aspects that we believe will have the most significant impact on the position of our clients, which include creditors as well as obligors or, for example, employers making deductions from wages. In addition to the Enforcement Code, the Amendment also amends other laws, primarily the Civil Procedure Code.

Termination of fruitless enforcements – enforcement “amnesty”

The Amendment introduces the institute of compulsory termination of enforcement proceedings, in a number of places in several different situations:

  • the transitional provisions contain a rule according to which the enforcement proceedings for amounts not exceeding CZK 1,500 are to be terminated if they were unsuccessful in the last three years before the Amendment came into force. This can be prevented by the creditor depositing an advance for the costs of the enforcement proceedings at the bailiff’s request, but only for the next three years. For claims affected by the termination of the enforcement, the creditors may claim as compensation an income tax rebate of 30% of the principal amount of the claims;
  • a new wording of Section 290(1) of the Civil Procedure Code has been inserted, whereby the court shall terminate the enforcement by deductions from wages if the debtor has not received wages for two years or if they have not received wages for three years at least in an amount that would allow deductions to be made;
  • the Amendment also introduces a general rule regarding the cessation of fruitless enforcements, namely if nothing has been recovered for six years after the commencement of the enforcement. This can be avoided if the beneficiary makes a deposit for the costs of the enforcement, in which case the execution proceedings will be extended for a further three years. Unlike the suspension of unsuccessful enforcements for amounts not exceeding CZK 1,500 according to the transitional provision, the Amendment does not provide for compensation in the form of an income tax rebate, which may appear unsystematic or discriminatory.

Neither of the above-mentioned reasons for the termination of enforcement applies to executions by sale of immovable property.

 

Changes to movables foreclosures

Movables foreclosures, i.e. foreclosures by sale of movable property, have undergone a fundamental change. A new rule has been established that no more than one enforcement proceeding by sale of movable property may be conducted against an obliged natural person. Thus, there is de facto a legal concentration of enforcement proceedings with the bailiff who initiated the proceedings first.

The Amendment also allows obliged persons to prevent the sale of their movable property if they voluntarily undertake to pay at least CZK 1,500 per month more than the amount of the statutory deductions. However, the bailiff will refuse to terminate the movables foreclosure if the ascertained value of all the debtor’s movable property included in the enforcement inventory clearly exceeds 36 times the amount that the debtor would have paid in this way.

Enforcement against retired people and against children and juveniles (not adult people) will be substantially restricted, for example, where the usual household goods cannot be affected. Only practice will show what is and what is not usual household equipment.

 

Deductions from wages 

The scheme for deductions from wages will also be changed, paymasters being entitled to a flat-rate reimbursement of the costs incurred for each calendar month in which they make deductions from the wages or other income of the obligor. The payer will be able to deduct the reimbursement from the amounts deducted before forwarding them to the bailiff.

 

Reordering of claims order

In the event of enforcement, the principal of the debt will now be repaid first in addition to the costs of conducting the enforcement. Only then will interest, default interest and the costs of the creditor be paid. The rule will thus be different from the Civil Code, but the regulation is closer to the principles applied in insolvency.

 

Question of territoriality

The question of the introduction of bailiffs’ territoriality, which has been widely discussed in the media, is not finally addressed in the Amendment. However, efforts to introduce it are still being made, and it is argued that this is intended to limit the “entrepreneurial manner” in which the bailiff’s practice is conducted.

You may recall that before the introduction of the institution of private bailiffs, judgments were enforced through locally competent court officials, which proved not particularly efficient. Therefore, to increase the general enforceability of the law, the institute of the private bailiff as an entrepreneur was introduced into Czech law, and this proved to be functional. We would therefore consider it unfortunate if, in the context of dealing with the excesses that occur in the activities of bailiffs, the positive effects of the introduction of private bailiffs into the Czech legal system were reversed. We will continue to monitor developments.

 

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This article merely expresses the general opinion of our law firm and is intended only to draw attention to certain aspects of the issues it deals with. It does not constitute advice or a recommendation on any specific matter and the information contained herein cannot be relied upon as legal advice within the meaning of the Act on the Legal Profession, nor as information or advice within the meaning of Section 2950 of the Civil Code. To assess your specific situation, we recommend that you obtain targeted legal advice, whether provided by our law firm or another authorized person. For more information on the services we provide, please contact us. Our attorneys will be pleased to assist you.