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Appointment of a supervisor

The Office of the Debtors' Ombudsman appoints a supervisor as soon as the application has been approved. The supervisor may be a lawyer employed by the Office or a lawyer that the Office engages for the project.

What is the supervisor’s role?

  • The supervisor’s role is to take the initiative in seeking solutions to the applicant’s difficulties by negotiating an agreement with creditors.
  • The supervisor prepares a proposal for an agreement with creditors, in consultation with the applicant.

The supervisor’s actions after being appointed

  • A call for claims is published in the Official Gazette (Lögbirtingarblaðið) – the deadline for filing claims is four weeks. During that period, the case is classified as pending.
  • When the claim deadline has passed, the case is reactivated.
  • The supervisor determines whether the applicant has fulfilled their responsibilities since the moratorium on debt payments began.
  • If the applicant has not fulfilled their responsibilities, it could mean that the supervisor will be obliged to request that the authorisation for debt mitigation be revoked.
  • If there is no reason not to continue processing the case, a draft debt mitigation agreement is completed, in consultation with the applicant.
  • The draft debt mitigation agreement is based on the position of each applicant at the time their case is being processed.

Points considered by the supervisor during preparation of the agreement

  • The applicant’s age
  • The applicant’s social situation and family status
  • The applicant’s health, including whether the applicant has a disability assessment or is in rehabilitation
  • The applicant’s education and employment situation
  • The applicant’s potential to earn a living

The following debts are not included in debt mitigation agreements:

  • Debt due to alimony or child support.
  • Debt due to student loans (it is possible to negotiate deferred payment alongside a debt mitigation agreement).
  • Debt due to fines, value-added tax, etc.
  • Debt accruing after the application for debt mitigation has been approved.

Sale of the applicant’s assets

If the applicant owns real estate, a vacation home, or a motor vehicle, the supervisor is required to examine the following:

  • Whether the applicant is able, after adjusting for living expenses, to pay mortgage loans based on the appraised value of the property.
  • It is then possible to recommend that the debtor retain the asset, but based on its size, the cost of operating it, etc.

When would it be recommended that an asset be sold?

  • If the applicant cannot service the debt on the asset, the possibility of selling the asset will be considered.
  • The sale of the asset must be recommended if the asset is not necessary to operate the debtor’s household and is one that the debtor can verifiably do without. This could apply in the case of vacation property and expensive motor vehicles.

What can a draft debt mitigation agreement entail?

  1. No debt mitigation period and full forgiveness of contractual claims
  2. A 12- to 36-month debt mitigation period
  3. Deferral of payments on all contractual claims and student loans during the debt mitigation period
  4. Payments to creditors during the debt mitigation period, in accordance with the debtor’s ability to pay
  5. Partial forgiveness of contraction claims
  6. Full forgiveness of contractual claims
  7. Sale of assets
  8. Amendments to loan terms and conditions.

When the draft agreement is ready, it is sent to creditors for comment. Creditors have three weeks to take a position on it.

What happens if creditors lodge a protest?

  • The supervisor reviews the creditors’ comments with the applicant, and they discuss the options that may be available in the circumstances.
  • If the applicant wishes to amend the draft agreement to accord with the creditors’ position, the agreement is amended and sent again to creditors for approval, and a new three-week protest period begins.
  • If the applicant does not agree to make such amendments to the draft agreement, it is possible to refer the case to the District Court and seek a composition agreement.
  • If no comments are received from creditors by the end of the protest period, the draft debt mitigation agreement is considered approved.
  • The supervisor then contacts the applicant and invites them to a meeting at the Office to sign the agreement, or the agreement is sent to the applicant by registered mail for signature.

Debt mitigation entails voluntary agreements, which means that all creditors that declared claims when the call for claims was published must approve the proposal in order for the debt mitigation agreement to be considered valid.

When the debt mitigation agreement has been signed, the supervisor’s processing of the case is complete. The moratorium on payment of debts concludes on the date the Office of the Debtors' Ombudsman confirms the agreement.


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