Financial aid for bankruptcy proceedings

For whom is assistance with bankruptcy expenses?

• Assistance with bankruptcy expenses can be appropriate for individuals who are in severe financial distress and have tried unsuccessfully to resolve their difficulties, and who plan to request bankruptcy proceedings.
• The applicant must satisfy certain requirements listed in legislation on financial assistance with the cost of security due to bankruptcy proceedings.
• Our advisors can help determine whether this measure is appropriate.

How do I apply for assistance with bankruptcy expenses, and what is the process?

• Applications for assistance in financial difficulties are filed electronically, using an e-ID or an Íslykill.
• When the application has been filed, the Debtors' Ombudsman obtains information on the applicant’s income, assets, and liabilities, and then decides, in consultation with the applicant, what steps to take next.
• Applicants themselves must provide information on their living expenses.

The conclusion of an application for assistance with bankruptcy expenses could entail the following:

• The application is approved, and the applicant is provided with information on the next steps in the process.
• The application is rejected, and the applicant is provided with guidance on other debt service assistance measures.
• The application is rejected, and the applicant is provided with information on bankruptcy if the applicant has a way to finance the cost of the bankruptcy collateral and other less onerous options will not suffice to resolve the applicant’s difficulties.
• The applicant always receives an overview of their financial position, irrespective of whether the application is approved or rejected.

What happens before an application for financial assistance is approved?

• The application is reviewed, and requests are made for all information that is needed to provide a clear view of the applicant’s financial position.
• The applicant must satisfy certain legal requirements in order for the application to be approved.
• When the application is evaluated, a thorough review of the applicant's finances is carried out, including assets, income, and liabilities over at least the last four years.
• The applicant must have filed their last four income tax returns.
• A determination must be made of whether the applicant will have access to funds other than earned income that they can use to pay debts; i.e., the proceeds of asset sales or funds contributed by others.
• The Debtors' Ombudsman verifies the applicant’s income, according to official data and activity (total deposits) on the applicant’s bank accounts.
• If there is a discrepancy between bank account activity and income according to official data, the applicant must provide an explanation.
• Living expenses are estimated using the Office’s cost-of-living references and information from the applicant on other expenses. It is necessary that the application include documents confirming the information provided, including rent, costs relating to running the home, and other monthly expenses.
• If there is any doubt about whether the applicant satisfies the requirements for financial assistance with bankruptcy expenses, the applicant is sent a letter or e-mail inviting them to provide explanations and submit data by a specified deadline.

What happens after the application has been approved?

• The applicant retrieves documents from the Office of the Debtors' Ombudsman and takes them to the District Court in the jurisdiction of their legal address.
• The applicant must pay the registration fee of ISK 19,000.00 when submitting the documents to the District Court.
• The Debtors' Ombudsman pays the cost of the bankruptcy collateral, ISK 250,000.00, directly to the Court when the case is heard.
• The applicant is summoned to the District Court when the case is heard. It is important that the applicant appear at the hearing; otherwise, the Court will assume that the applicant has withdrawn the request for bankruptcy proceedings.
• The judge determines whether the applicant satisfies the requirements for having their estate subjected to bankruptcy proceedings.
• Further information on bankruptcy proceedings can be found here.

What happens if the application is rejected?

• If an application for assistance with bankruptcy costs is rejected, the applicant may appeal the decision to the Ministry of Social Affairs. The appeal is filed electronically, and the appeal form can be found on the Government Offices website.

An application for assistance with bankruptcy expenses does not entail the following:

• General legal advice or assistance with matters falling under civil law.
• Legal advice on matters such as individual claims and their legitimacy.
• Assistance with filing income tax returns and/or guidance on tax matters.