What You Should Know About Insolvency of Non-Merchant Natural Persons

In ruling C-699 of 2007, the Constitutional Court urged Congress, within its legislative configuration powers, to issue a universal regime to which non-merchant natural persons in insolvency could adhere[1], considering that a regulation governing insolvency was in force, namely Law 1116 of 2006, which only applied to merchant natural persons and legal entities that carried out commercial operations within the national territory, whether private or mixed[2], thus isolating non-merchant natural persons.

In 2010, Law 1380 was issued as a mechanism that would allow the debtor's recovery; however, it was declared unconstitutional by Ruling C-685 of 2011 due to procedural flaws. But with the creation of the General Code of Procedure (Law 1564 of 2012), the regulations pertinent to this regime were established, thereby setting up the insolvency regime for non-merchant natural persons, which serves to i) negotiate their debts through an agreement with their creditors to normalize their credit relationships; ii) validate private agreements reached with their creditors; iii) liquidate their assets[3].

This insolvency regime applies to those natural persons who are not merchants and who are in a state of cessation of payments, that is, persons who have the status of debtor or guarantor, who have failed for a period longer than 90 days to pay two or more obligations in favor of 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 methods consistent with their current financial situation, in order to fulfill their financial obligations.

Regarding jurisdiction to hear debt negotiation and agreement validation procedures, Decree 2677 of 2012 stipulates that the Conciliation Centers of the debtor's domicile, duly authorized by the Ministry of Justice and Law, shall have jurisdiction over 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 his attorney, and the documents established in this article shall be attached, such as:

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

The duration of the debt negotiation process according to the General Code of Procedure shall be 60 days from the date of acceptance of the request and may be extended for another 30 days at the request of the debtor and his creditors by mutual agreement. Once the negotiation request is accepted, no further administrative collection proceedings may be initiated against the debtor, and a stage of suspension of all ongoing proceedings shall begin from the acceptance of the negotiation.

What happens if I have ongoing proceedings?

If the debtor has ongoing proceedings, once the payment agreement is reached, restitution or enforcement proceedings in which creditors are plaintiffs shall be suspended until verification of compliance or non-compliance with the obligation agreed upon in the agreement.