Reliefs for debtors under FRIA
Being insolvent is defined as someone whose financial condition renders him or her generally unable to settle his or her liabilities as they fall due
Published in Daily Tribune on June 25, 2021
by: Migmar Bernped S. Francisco
Aside from the tremendous impact on health, Covid-19 has also dealt a major blow to the local economy.
The economic downturn brought about by the pandemic-induced lockdowns has translated into less income for most households. Consequently, many are now left with increasing financial liabilities and scarce means in addressing them.
In dealing with these financial woes, specifically on settling debts, debtors may consider the reliefs provided in Republic Act 10142 or the Financial Rehabilitation and Insolvency Act (FRIA) of 2010.
In particular, an individual debtor has the option to either file a petition for suspension of payments or file a petition for liquidation.
Both petitions must be filed in the court having jurisdiction over the province or city where the debtor has resided for six months prior to the filing of the petition.
An individual debtor under the law pertains to a natural person who is a resident and citizen of the Philippines who has become insolvent.
Being insolvent is defined as someone whose financial condition renders him or her generally unable to settle his or her liabilities as they fall due in the ordinary course of business or has liabilities that are greater than his or her assets.
Accordingly, a verified petition for suspension of payments under Section 94 of the FRIA may be filed when a debtor has assets that exceed his liabilities but foresees the impossibility of paying his debts when they respectively fall due.
To be attached in the said petition are the schedule of debts and liabilities, inventory of assets and the proposed agreement with creditors.
If the petition is sufficient in form and substance, the court shall issue an order calling a meeting of all the creditors named in the schedule of debts and liabilities directing them to present written evidence of their claims. The meeting is to be presided by a commissioner appointed by the court.
So long as the proceeding relative to the suspension of payments is pending, the debtor is forbidden from disposing of his or her property except those used in the ordinary operations of commerce or industry in which he or she is engaged. Likewise, the debtor is prohibited from making any payment outside the necessary expenses of his or her business.
Upon motion filed by the individual debtor, the court may issue an order suspending any pending execution against the debtor. Note, however, that properties held as security by secured creditors are not covered by the suspension order.
Once the decision of the majority of the creditors to approve the proposed agreement or any amendment thereof is upheld by the court, or when no objection is made, the court shall order that the agreement be carried out and all parties bound thereby to comply with its terms.
Alternatively, when the properties of the debtor are no longer sufficient to cover his or her liabilities, and owes debts exceeding five hundred thousand pesos (P500,000.00), he or she may file a petition for voluntary liquidation under Section 103 of the FRIA. Attached in the petition are the schedule of debts and liabilities and inventory of assets.
If the petition is sufficient in form and substance, the court shall issue a Liquidation Order declaring the debtor insolvent. The sheriff shall take possession and control of all the properties of the debtor except those exempt from execution.
Similarly, the debtor is prohibited from making payments and transfers of any property. All creditors are then directed to file their claims with the liquidator who shall submit a liquidation plan.
The liquidator has the principal duty of preserving and maximizing the value of, and recovering, the assets of the debtor with the goal of eventually liquidating them and discharging all claims against the debtor to the extent possible.
In accordance with the State’s policy to encourage debtors and their creditors to collectively and realistically resolve competing claims and property rights, the aforementioned remedies for individual debtors under FRIA may be resorted to. The law offers an avenue where the debtor and creditors may come up with practical and feasible means of settling debts.
