Debt mitigation for individuals
Individuals, who have serious difficulties in meeting their financial obligations and do not expect to be able to do so in the immediate future, can apply for debt mitigation. The Debtors' Ombudsman will assist to fill in such applications and will assess whether the applicant fulfils the required conditions.
If individuals fulfil the required conditions for debt mitigation, a representative will be appointed who will negotiate a contract on debt mitigation based on the payment of instalments in accordance with financial capacities. This contract will be entered for a period of 1-3 years. It can include articles on terms of payment, reduction or cancellation of individual claims.
Documents to be delivered
- Application is only considered valid if applicant has for the last 4 years returned Tax returnes to the Tax authorities.
- Self-employed applicants need to hand in copies of the latest 3 payslips
- Copies of all documents on the payment of pensions, benefits, child support or other income of all members of the household
- A written assessment of the current situation and the reasons why this situation developed this way
- A declaration of consent for the collection of data, see here. This declaration of consent needs to be signed both by yourself, your spouse and any other member of the household over 18 years old
Extension of payment
The extension of payment, for applications prior to 1. July 2011, commenced as soon as the application for the debt mitigation of an individual was received by the Debtors' Ombudsman. The extentsion of payment, for applications received at a later time, will commence a soon as the application has been processed and approved by the Debtors' Ombudsman.
According to the law on debt mitigation of individuals, both creditors and applicants are under certain obligations during the period of extension. Please note that if you do not meet your obligations during the extension of your payments, your contract on debt mitigation might lose validity. Your application will be advertised in the Legal Gazette (Lögbirtingablaðið) in order to inform creditors about the extension.
Income and bank accounts
During the extension of your payments, you are not allowed to enter new debts. Your bank, therefore, is entitled to close your accounts with overdraft facility, payment services or credit cards.
- In agreement with your bank, you will need to open a new account with a constant electronic verification system and without overdraft facility. Please inform your employer about this to make sure that your wages will be paid into this new account.
- Please contact the appropriate bank or credit card company to find out whether your credit card limit changes or not.
- You will have to open or choose an account to deposit the amount of money above what is needed for household and car expenses, if applicable. If you do not comply with this, your application will be rejected.
Household and car expenses
- You are allowed to make all payments required to cover the necessary daily household expenses. The Debtors' Ombudsman publishes a reference budget which forms the basis to define what counts as normal costs for each asset in accordance with the size of your family.
- You are allowed to make all payments required to cover the necessary housing costs, i.e. real estate tax, home owners' association fees, real estate and car insurance fees, heating, electricity and phone. Please note, however, to pay only those claims arising after the extension period commenced. You are not allowed to pay for older debts, e.g. with the home owners association, only new bills.
- You are allowed to pay rent and leasing fees of your car, if applicable.
- All the rest of your income, after you have paid your household expenses, needs to be deposited in a savings account. The total amount accumulated there will be used to pay off your debts at the end of the extension period.
- You will need to terminate all contracts not necessary for running the household, e.g. insurance fees for campers etc.
Loans and default (if applicable)
- Instalments of loans will be extended and must not be paid during the period of extension. This applies to housing loans, car loans, credit card debts, overdraft or other obligations which were entered before the payment extension commenced independent of whether you are in default on the loan or not.
- Please note that your guarantors may not make payments for any of the above mentioned obligations either.
Your assets
- You are not allowed to hand over or mortgage your assets or valuables which might be of use to your creditors as a payment at the end of your extension period. The objective of the contract on payment extension is to improve the financial situation of the applicant and in order to achieve this, the principle of equality must be applied regarding the financial assets which might later be used to meet your obligations.
- If you receive a bid for your assets during the period of extension, the Debtors' Ombudsman encourages you to contact his office in order to ask for instructions.
- A debtor must not accelerate a debt, attach or arrest your property or have your property auctioned nor demand a declaration of bankruptcy.