Debtor Relief Options: Extension of the Relief Plan

#### By: Dr. Luz Eneida Saldaña, Attorney (Universidad del Rosario), specialist in Administrative Law and Financial Law


This article was published in August 2021 and describes the pandemic-era Debtor Support Program (PAD), whose extension ended on August 31, 2021. The sections on individual insolvency and External Circular 026 of 2017 may still be useful, but verify that they remain in force. It is kept as a historical reference.

Although we are still in the pandemic, many debtors in the financial system are feeling the restart of collections, with or without PAD relief.

The Financial Superintendency, through External Circular 012 of May 31, 2021, extended the Debtor Support Program (PAD) until August 31, 2021, a date that under External Circular 022 of 2020 had been set for June 30, 2021, so that debtors can redefine their loans in light of the difficulty of paying them under the conditions they had before the crisis.

Citing the need to create financial conditions that facilitate economic reopening and reactivation, complemented by credit risk management, supervised financial institutions may establish procedures that use alternative information, both for granting new loans and for redefining existing ones, that give them a reasonable and objective view of the debtor's real or potential ability to pay and knowledge of the economic sector and its recovery.

The relief includes reducing installments (which lengthens the term) or grace periods, which you should discuss with the financial institution you owe, under External Circular 022 of 2020.

INDIVIDUAL INSOLVENCY LAW: Law 1564 of 2012 (the General Code of Procedure), or the insolvency procedure for non-merchant individuals, is a process that lets you negotiate your debts with the people or entities (creditors) you owe money to, before having to face the serious consequences of prolonged non-payment, such as garnishment of your salary or losing your home in the case of a mortgage. This is done through an agreement that must be validated before an authorized conciliator. If no agreement can be reached, or the one reached is breached, you may have to pay with your own assets. Once your insolvency is resolved, you can restart your financial life from zero, although it is a last resort, since it leaves the person who uses it highly limited.

With the Insolvency Law, a payment agreement is reached with creditors, but it generally means that all possible income will go toward paying the debts. In other words, it leaves the person with just enough to survive. They are also financially limited, since it affects their credit history and they cannot apply for new credit (unless it is for basic needs and at most to cover monthly expenses).

SFC External Circular 026 of 2017:

Circular 026 of 2017 of the Financial Superintendency provides a very useful remedy when you have debts with a single institution. You can invoke this legal remedy through a petition (derecho de petición), which allows loans to be restructured to suit the debtor. In fact, this option was created to give a way of improving loan conditions without having to use the Insolvency Law. But it only applies depending on the type of loan, for those with up to 60 or 90 days of consecutive delinquency.

This is what the Circular says. To allow the debtor to properly meet their obligation in the face of a potential or actual deterioration of their ability to pay, institutions may modify the originally agreed terms of loans without these adjustments being considered a restructuring under subsection 1.3.2.3.3.1, provided that during the last 6 months the loan has not reached consecutive delinquency of more than 60 days for microcredit and consumer loans, and 90 days for commercial and housing loans. These modifications may be made at the debtor's request or on the institution's initiative, with the debtor's prior agreement.

The new terms must meet financial viability criteria, taking into account the analysis of risk and the debtor's ability to pay, without excessive use of grace periods.

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SOURCES:

• SFC Circular 12 of May 31, 2021
• SFC Circular 26 of September 29, 2017
• Individual Insolvency Law

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