Application of ‘‘Fresh start‘‘ Doctrine for Individual Debtors in Lithuania: EU and US perspective

Abstract

Bankruptcy of natural persons is not legalized inLithuania. It means, individuals have to fulfill theirobligations to the creditors to the end of their life. Duringthe social welfare crisis period that is present in Lithuaniaat the moment this issue is especially relevant. In spring of2009 the project of legal act concerning bankruptcies wasregistered in Seimas (Parliament) of Republic ofLithuania, but in spite of the opinion existing in academicliterature that legalization of bankruptcy of naturalpersons is absolute necessity, the adoption of therespective legal act in Lithuania was postponedindefinitely. Although professionals criticized some of theclauses of the proposed legal act, the enactment of the actwas postponed not because it was imperfect in its form butbecause at the moment its legalization would be irrationalin the face of society‘s expenditure and benefits.The objective of the article is to generalize andevaluate necessity of the legalization of insolvency ofnatural persons and to present a conceptual model forlegalization of individual insolvency.The first part of the article is devoted to the analysis ofarguments of supporters and opponents of the legalizationof individual insolvency. The insolvency of an individualand legalization of procedures of bankruptcy are aimed atsolving the recovery of the debts from the insolventindividual in a civilized way by balancing all of hiscreditors’ interests. From the analysis of supporters’ andopponents’ arguments interesting conclusion can be drawnthat individual bankruptcy can be ranked as a form oflimited liability for individuals. It gives reason for premisethat a debtor in some cases will behave opportunistic, butin spite of that fact, the global experience shows that therule of limited liability is very socially and economicallyuseful. The survey also proves that there are neither legalnor economic arguments for suspension of legalization ofbankruptcy of natural persons. The second part of thearticle is devoted to modeling the conceptual model forlegalization of individual insolvency. Suggested modelgives the understanding that “Fresh start” doctrine cannotbe associated with the straight discharge from the debts.The natural person can be discharged from the debts ifonly he meets the requirements for an application to courtfor bankruptcy procedures and if only he fulfilled thepayment plan and successfully passed prevention andrehabilitation procedure. The issue of procedures ofprevention and integration of the debtor is highly1 In the scope of this article legal terms “bankruptcy” and “insolvency”are used as synonyms referring to a bankruptcy of a natural person.important and complicated. The detailed system of suchprocedure is the object of another research based on theexperience of other countries. This research would developa longitudinal picture of the debtor after bankruptcy andwould reveal whether most debtors really get a fresh startand why some of them fail.