Insolvency of Non-Merchant Natural Persons

Insolvency is a legal situation in which a person cannot meet the payments they must make, because these exceed their available economic resources[1] and therefore is subject to various judicial processes with the ultimate purpose of fulfilling their acquired obligations.

In light of this, it became necessary to create an insolvency regime aimed at resolving the situation of debtors and a diversity of creditors, in a context of public interest determined by the need to preserve credit and economic activity. For this reason, the Constitutional Court in ruling C-699/2007 urged the Congress of the Republic to exercise its legislative configuration power to issue a universal regime that non-merchant natural persons in insolvency could avail themselves of[2], considering that there was already a norm addressing the issue of insolvency, namely Law 1116 of 2006, which only applied to merchant natural persons and legal entities conducting commercial operations within the national territory, whether private or mixed[3], thereby excluding non-merchant natural persons.

In 2010, Law 1380 was issued as a mechanism that would allow the recovery of the debtor in cessation of payments; however, said regulation was declared unconstitutional by Ruling C-685 of 2011 due to procedural defects. But with the creation of the General Code of Procedure (Law 1564 of 2012), the pertinent regulations for this regime were established and provided for, thus establishing the insolvency regime for non-merchant natural persons, which has the following objectives:

1. Negotiate debts through an agreement with creditors to achieve the normalization of credit relationships;
2. Validate private agreements reached with creditors;
3. Liquidate the debtor's assets[4].

As its name indicates, this regime only applies to natural persons who are not merchants and who are in a state of cessation of payments, that is, it applies to persons who have the status of debtor or guarantor but have failed to pay for a period exceeding 90 days two or more obligations owed to two or more creditors, or if they have been involved as defendants in enforcement or administrative collection proceedings, so that they can seek payment plans or arrangements consistent with their current financial situation in order to meet their financial obligations. It should be clarified that according to the Superintendence of Companies in official letter number 220-082411 of 2012, the rules set forth in Title IV of the General Code of Procedure do not apply to all natural persons who have the status of controlling parties of commercial companies or who are part of the list of companies subject to the scope of Law 1116 of 2006[5].

Regarding jurisdiction to hear the procedures for debt negotiation and validation of agreements, Decree 2677 of 2012, which was later incorporated into the General Code of Procedure, states that the Conciliation Centers of the debtor's domicile, duly authorized by the Ministry of Justice and Law, are competent to hear such procedures, as well as notary offices located in the debtor's domicile.

To initiate the negotiation process, there are certain requirements, which are established in Article 539 of the General Code of Procedure, making clear first that the request for the negotiation process may be submitted directly by the debtor or through their attorney, and the documents established in this article must be attached, such as:

• Detailed report of the cause of the cessation of payments;
• Complete and updated list of all creditors in the order of priority of credits, indicating the name, domicile, and address of each, email address, the amount, distinguishing principal and interest, date of credit grant and maturity, among others.
• Complete list of assets (with their estimated values and necessary identification data), including those held abroad. If they are subject to attachments, liens, or any other type of precautionary measures, as well as if they are subject to family housing protection or family patrimony, such status must be identified.
• List of judicial proceedings or any administrative procedure or action of a patrimonial nature that the debtor is pursuing or that is pending against them, identifying the court or office where such proceedings or actions are filed.
• Certification of the debtor's income issued by their employer; if self-employed, they must make a declaration thereof.
• The duly quantified and detailed amount of resources available for payment of obligations, except those necessary for the debtor's subsistence.
• If married or if a marital partnership has been declared, the relevant information must be provided; if divorced or had a marital partnership, the respective public deed or judgment accrediting or declaring the separation of assets and liquidation must be provided; likewise, alimony obligations to which the debtor is subject must be accredited, indicating the beneficiaries and the amounts.

The debt negotiation process[6] according to the regulations lasts 60 days from the date of acceptance of the request and may be extended for another 30 days upon mutual agreement between the debtor and creditors. Once the negotiation request is accepted, it should be noted that no new enforcement proceedings for restitution of goods due to default in payment of installments, or administrative collection proceedings against the debtor, may be initiated, and from the acceptance of the negotiation, all ongoing proceedings related to the coercive collection of obligations will be suspended.

The debtor may not request another insolvency proceeding; the statute of limitations will be interrupted, and the limitation period for all credits that became enforceable before the initiation of the process will not run[7], among other effects established in Article 545 of the General Code of Procedure (Law 1564 of 2012).