Following intense political debates and extensive public consultations, Bulgaria has adopted the long-anticipated Personal Insolvency Act (the “Act”). For the first time, it introduces the legal concept of the so-called “personal bankruptcy” - insolvency proceedings for over-indebted individuals who have acted in good faith. Freelancers, sole traders and entrepreneurs are excluded from the scope of the new legislation.

The Act has not yet been published in the State Gazette, but this is expected to happen in the coming days. Insolvency proceedings of natural persons will commence no earlier than 9 months after the promulgation of the Act. Nevertheless, the participants in the civil turnover already expect its effective introduction as a new tool for financial rehabilitation seeking a balance between the interests of debtors and creditors through judicial supervision.

Proceedings are initiated upon the debtor’s application to the district court at its registered current address. The debtor must simultaneously meet the following conditions:

1) Inability to repay the due monetary obligations for a period of at least 12 months;

2) Total debt exceeding 10 minimum wages - equivalent to BGN 10 770 [approx. EUR 5 500] as of June 2025;

3) ‘Good faith’ of the debtor - defined negatively through an exhaustive list of circumstances in which good faith is excluded. For example, the debtor is not of good faith if it is established that he/she has:

• Been convicted of certain criminal acts - including tax and/or financial crimes;

• Disposed of assets gratuitously;

• Remained unemployed without good reason;

• Hindered the activities of the insolvency administrator, etc.

4) Lack of previous proceedings under the same Act for the particular debtor.

Together with the application for the opening of the proceedings, the debtor shall submit a statement containing information on his employment, family and property situation, obligations and creditors, as well as the proceedings initiated against him. The Act also allows for a repayment plan to be filed even at this stage.

If the statutory prerequisites of the procedure are met, the court shall issue a decision to open the insolvency proceedings and appoint an insolvency administrator. The functions of the insolvency administrator include:

• Oversighting the debtor's transactions;

• Tracing and identifying the debtor's assets and creditors;

• Representing the debtor in legal disputes;

• Collecting the debtor's receivables and depositing the amounts received in a special bank account;

• Proposing a repayment plan and monetizing the assets from the mass of the insolvency.

After the proceedings commence, the debtor may conclude transactions and fulfil current obligations required for the satisfaction of his basic living needs - and this within the limits of his non-seizable income. Any transactions beyond this scope, carried out without the knowledge or consent of the insolvency administrator, are null and void and the debtor is presumed to be of bad faith.

All creditors of the debtor shall participate in the proceedings, regardless of when their receivables have arisen. The Act lays down a special procedure for their satisfaction, with priority given to secured claims - claims backed by pledge or mortgage are placed first.

All pending civil/commercial litigation or arbitration proceedings against the debtor of a pecuniary nature are stopped - except for cases involving collateral provided by third parties. New proceedings against the debtor may not be initiated.

A central element of the proceedings is the preparation and adoption of a repayment plan for the debtor’s obligations. The plan may envisage deferral and rescheduling of payments for up to three years, partial or total remittal of debts, as well as other actions and transactions with the debtor's assets aimed at satisfying creditors. All obligations - including those for which full or partial remittal is carried out – are deemed extinguished upon successful execution of the plan.

If such a plan is not adopted, the court shall declare the debtor insolvent. From that point onwards, all his monetary and non-monetary debts shall become collectable. Claims and rights not claimed in the proceedings shall be extinguished.  

The debtor's assets shall be monetized and liquidated. If the assets prove insufficient in view of the amount of the debts, the unsatisfied claims of the creditors shall be extinguished upon the entry into force of the court's decision for terminating the insolvency proceedings due to lack of any further estate.

The Act also provides for a special case - when the debtor does not have even the minimum necessary funds to cover the initial legal costs for initiating the proceedings. In such a case, the court opens the proceedings and imposes a general restraint and foreclosure, but suspends the process for a one-year period. If the debtor’s financial situation remains unchanged, a new three-year period begins, at the end of which the debtor's obligations to all creditors are extinguished ipso jure.

However, as an exception to the above general rule, obligations secured by a mortgage or pledge, obligations for fines, tort, statutory maintenance, etc. are not redeemed.

With the adoption of the Personal Insolvency Act Bulgarian law takes an important step towards a long-needed social and economic reform - it opens up the possibility to relieve honest bona fide natural persons from unsustainable debts through a transparent and judicially controlled mechanism.

In combination with the institute of absolute statutory limitation, which was adopted in Bulgaria some time ago, the new Act provides a more proactive means of debt repayment with potential for implementation in significantly shorter timeframes. At the same time, the personal bankruptcy regime also introduces several safeguards to protect the creditors’ interests through the involvement of an insolvency administrator and the implementation of a strictly regulated judicial procedure.

Creditors and businesses will have to take into account the new regulatory risk when engaging with individuals, and adapt their policies on debt collection, re-evaluate creditworthiness assessments, as well as revise contractual clauses in order to limit the risk of financial exposure.