Q&A
What is a call for claims published in the Official Gazette [Lögbirtingarblaðið]?
- When an application for debt mitigation has been approved, the supervisor in the case must publish a call for claims in the Official Gazette [Lögbirtingarblaðið]; that is, an advertisement inviting those who consider themselves to have a claim against the debtor to declare their claim to the supervisor within four weeks.
- The Office wishes to emphasise that the call for claims could cause credit institutions to note in their customer records that the debtor has applied for debt mitigation.
The text of the call for claims is as follows:
Call for claims due to debt mitigation agreement
With a decision taken on [date], the Office of the Debtors' Ombudsman approved [applicant name(s)]’s application to seek a debt mitigation agreement. The undersigned was appointed supervisor of debt mitigation on [date]. All those who consider themselves to have claims against the above-named debtor are hereby invited to declare their claims to the undersigned supervisor within four weeks of the first publication of this invitation; cf. Article 10, Paragraph 1 of the Act on Debt Mitigation for Individuals. Those creditors that enjoy lien rights or a third-party guarantee for claims against the debtor without the lien or guarantee applying to a specific debt must specify in the declaration of claim which debt it applies to; cf. Article 10, Paragraph 2 of the Act on Debt Mitigation for Individuals. Furthermore, creditors shall specify in the declaration of claim an account number for payment intermediation.
Declarations of claim shall be sent to the Office of the Debtors' Ombudsman, c/o [name of lawyer], Kringlan 1, 103 Reykjavík.
Creditors wishing to declare claims in electronic form shall send their declaration by e-mail to ums@ums.is.
Meetings will be held with creditors if the occasion warrants during the handling of the case; cf. Article 16, Paragraph 6 of the Act on Debt Mitigation for Individuals.
Are my guarantors informed that I am undergoing debt mitigation?
The supervisor in the debt mitigation case sends a letter to your guarantor(s), notifying them that the process of seeking debt mitigation has begun. The guarantor(s) will also receive a copy of the advertisement published in the Official Gazette [Lögbirtingarblaðið] – the call for claims – inviting creditors to declare claims against you.
Are the obligations of third-party guarantors provided for in the debt mitigation agreement?
Debt mitigation does not cover the obligations of third-party guarantors, no matter whether the guarantor provided a personal guarantee for the claim or pledged an asset for the purpose. This entails that creditors may collect payment of claims from guarantors when the debt mitigation agreement has taken effect, even though the agreement specifies that the debt has been forgiven vis-à-vis the principal debtor.
How are my guarantees handled during the debt mitigation process?
If your guarantee has not been activated – i.e., if the principal debtor is not in arrears on the claim – the guarantee is not included in the debt mitigation process. If the guarantee is activated during the debt mitigation period, the debt mitigation agreement must be amended to include the claim. However, you are not required to pay more on the claim than the proportion you are required to pay on other contractual claims covered by the debt mitigation agreement.
If I have no debt service capacity, am I eligible for a debt mitigation agreement?
Yes. The debt mitigation measure does not require that you be able to make payments on your claims. If you own real estate, you can expect to have to sell it because you cannot afford to make payments on it. Your supervisor will attempt to negotiate debt forgiveness based on your estimated future debt service capacity.
Must I sell my assets during debt mitigation?
It is the debtor who takes the final decision on whether to sell assets, but if the debtor refuses to sell an asset, the supervisor may request that the debt mitigation negotiations be cancelled. The supervisor may recommend that the property be sold if it is clear that the debtor cannot afford the payments on collateralised claims within the appraised value of the property. The same applies if the supervisor considers your property unsuitable as regards your personal circumstances, the size of the property, and instalments on collateralised claims. Furthermore, it is generally required to sell other assets that the debtor can do without, such as plots of land, vacation property, etc.
How is the debt mitigation period determined?
The debt mitigation period according to the agreement is typically one to three years. In determining the length of the debt mitigation period in any given case, the supervisor must bear a number of points in mind. Matters of importance in this context are the amount of the debts, the structure of the debtor’s family, whether the debtor is supporting children, the debtor’s age and health, and whether real estate is to be sold.
What is included in the draft debt mitigation agreement?
The draft agreement shall specify relevant information that gives a comprehensive overview of the debtor’s finances and debt service capacity, including information on income, debt, assets, and monthly expenses. It shall be accompanied by a list of all known claims, together with the supervisor’s proposals for their treatment. Furthermore, all valuable assets that are to be sold or retained shall be specified, together with their value. The supervisor will request that the debtor read the draft agreement and confirm that all of the information therein is correct.
What happens if creditors protest against the draft debt mitigation agreement?
If creditors lodge protests against the draft agreement, the supervisor will examine the protests. The supervisor determines whether information has emerged that could result in the cancellation of the debt mitigation negotiations, such as the debtor’s conduct. If not, the supervisor will try to convince the creditors to revise their position and will determine whether the draft agreement could be amended to accord with the creditors’ requests. If voluntary negotiations prove unsuccessful, the debtor may declare their willingness to seek a composition agreement for contractual claims and/or temporary debt mitigation for real estate claims. The supervisor then takes a reasoned position on whether to recommend composition or debt mitigation of real estate claims.
What happens if I cannot honour my agreement?
- If unforeseen circumstances arise and you cannot make payments according to the debt mitigation agreement, you may demand that the agreement be amended. Examples of such unforeseen circumstances would include an accident, long-term unemployment, unexpected expenses, etc. The debtor’s request shall not be considered if the change in circumstances can be traced to irresponsible conduct on the debtor’s part. All information on the process can be found here: Amendments
- If you are in serious arrears with payments according to your debt mitigation agreement, a creditor may initiate civil legal proceedings in court and demand the cancellation or invalidation of the debt mitigation agreement. It is therefore exceedingly important that you seek advice from employees of the Office of the Debtors' Ombudsman if you believe you cannot make your payments, as it may be possible to have your agreement amended.
What shall I do if my financial situation improves significantly during the debt mitigation period?
According to the Act on Debt Mitigation for Individuals, you are required by law to inform your creditors, within one month and in a secure manner, that your financial situation has improved significantly. Your creditors are entitled to demand that the debt mitigation agreement be amended as a result. If you have received a large sum of money, your creditors may demand that part or all of that amount be divided among creditors.
My guarantor is being subjected to collections measures because I am in debt mitigation. What can be done?
- Because the debt mitigation agreement does not include third-party guarantees, the guarantor must negotiate payment of the obligation with the creditor.
- The Office encourages guarantors to acquaint themselves with the discussion of valid and invalid guarantees, which can be found here: Guarantees
- Guarantors who experience payment difficulties due to collection of a past-due guarantee may contact the Office of the Debtors’ Ombudsman and acquaint themselves with the service the Office provides.