Bulgaria Introduces Personal Bankruptcy Act to Give Honest Debtors a Fresh Start
2 October 2025In mid-2025, Bulgaria took a decisive step by adopting the Personal Bankruptcy Act (the “Act”). This long-debated piece of legislation, also referred to as “personal insolvency,” is designed to give a fresh start to honest citizens trapped in debt.
Who can avail themselves of the legislation?
The Personal Bankruptcy Act applies to individuals who are in a state of continuous insolvency and have acted in good faith. It does not apply to those engaged in business as sole proprietors, craftspeople, business operators or freelance professionals.
Bankruptcy proceedings for such individuals are dealt with in the Commerce Act in combination with the Civil Procedure Code.
Unusually, the process can only be initiated by the debtor themselves. Creditors cannot seek to declare a person bankrupt without their consent.
Key Requirements of Personal Bankruptcy Act
An applicant must meet several conditions:
- Act in good faith;
- Pay one or more due sums for more than 12 months;
- Owe debt exceeding 10 minimum monthly salaries; currently this is in the region of €5,500.
- Not have used the procedure before
Territorial jurisdiction lies with the district court at the debtor’s registered current address at the time of filing. The parties cannot vary this by agreement.
Assessing Good Faith
The Personal Bankruptcy Act provides criteria to distinguish between debtors objectively facing financial hardship and those attempting to evade responsibility.
Courts will examine whether the debtor’s obligations were proportionate to their income and assets, or whether they arose from reckless borrowing and spending. Key considerations include:
- Whether the debtor concealed information about their assets or income; and
- Whether they have been criminally convicted for breach of trust, offenses against creditors or against the financial system (unless the offender has been rehabilitated);
- Whether the debtor is avoiding taking up employment despite being able to;
- Failure to declare assets over the past three years;
- Transfers of property at undervalue, gratuitous transactions, or mortgaging assets to third parties that harm creditors’ interests;
- Non-cooperation with trustees or court inspections;
- Breach of repayment plans or settlements;
- Failure to notify changes of address;
- Disposals of assets to related parties in suspicious circumstances.
Only those found to have acted in good faith may continue with the proceedings..
Limitation Periods
The submission of a creditor’s claim within insolvency proceedings interrupts the limitation period for the duration of the proceedings. However, if the claim is not admitted into the insolvency proceedings, the interruption is not recognised, and the suspension is nullified.
Consequences of Approval
If the court approves the application for personal insolvency, a trustee is appointed to take control of the debtor’s assets, and a freeze is placed on judicial and enforcement measures.
From that point, the debtor cannot manage or dispose of his or her assets, nor make payments, without the trustee’s approval. Exceptions are made for essential living expenses such as rent, utilities, food, healthcare, education, and core social services.
Outcomes for Debtors and Creditors
- Voluntary Repayment Plan
The debtor, or with their consent the trustee, may present a repayment plan to creditors. The creditors’ meeting votes on whether to approve it. If accepted and performed successfully, the proceedings end and the debtor is released from further obligations to those creditors.
Once the court decision approving the repayment plan is in force, a new limitation period begins under Article 110 of the Obligations and Contracts Act for claims arising before the date of the insolvency proceedings, provided those claims are due immediately. If the plan defers or reschedules payments, the new limitation period begins from the moment the obligation becomes due.
- Declaration of Insolvency
If no repayment plan is proposed or approved, the court formally declares the debtor insolvent. With the declaration of insolvency, the court removes the debtor’s right to manage or dispose of assets included in the insolvency estate and orders the liquidation and distribution of those assets. Once it is determined that no further assets can be liquidated, the remaining debts are discharged and the proceedings are closed.
Insolvency proceedings may be reopened upon written request by the debtor or a creditor with an accepted claim, if within one year of termination, funds reserved for disputed claims are released or previously unknown assets are discovered.
- Suspension Due to Lack of Funds
If the debtor cannot cover even the initial procedural costs, the proceedings are stayed. The court declares the debtor insolvent and opens the insolvency proceedings, imposes a general freeze and injunction, but then suspends the proceedings. The debtor is required to report their assets to the court monthly and within seven days of acquiring new property. A one-year period begins from the date the proceedings are stayed, during which the proceedings may be resumed if the debtor proves they possess seizable assets sufficient to cover the initial costs. A creditor may also request resumption by depositing the required amount to prepay those costs.
If no funds are found within the one-year period, then after three years from the effective date of the insolvency declaration, certain types of debts are automatically discharged with respect to creditors whose claims were included in the debtor’s insolvency petition.