Personal bankruptcy law in Bulgaria (ЗНФЛ): full analysis

On 4 July 2025 the Insolvency of Natural Persons Act (Закон за несъстоятелност на физическите лица, ЗНФЛ), adopted by the 51st National Assembly on 19 June 2025, was promulgated in the State Gazette (Държавен вестник, ДВ) No. 54. For the first time, Bulgarian law introduces the institution of so-called “personal bankruptcy” (личен фалит) for ordinary natural persons who are not traders. The Act entered into force on 8 July 2025, but its real application depends on the creation of the Insolvency Register (Регистър по несъстоятелност).

In this analysis we look at the structure of the ЗНФЛ, the conditions for opening proceedings, the procedural stages and the practical questions that arise for lawyers and legal practitioners in applying the new Act.

What the ЗНФЛ is and what it regulates

The Insolvency of Natural Persons Act regulates two main institutions: insolvency proceedings for natural persons, and the discharge of outstanding debts after the proceedings end. Under Art. 1 ЗНФЛ, the aim is to ensure fair satisfaction of the creditors and to give the debtor who acted in good faith the chance of a fresh start.

There is an important difference between the ЗНФЛ and insolvency proceedings under the Commerce Act (Търговски закон, ТЗ). While the ТЗ governs the insolvency of sole traders (Art. 607а(1) ТЗ) and entrepreneurs (Art. 760а ТЗ), the ЗНФЛ covers natural persons whose debts do not arise from commercial activity. Art. 2(1) ЗНФЛ expressly excludes the application of the Act to sole traders and entrepreneurs for debts arising from their activity.

The five cumulative conditions for opening proceedings

Art. 4 ЗНФЛ sets out the five conditions that must all be met at the same time for insolvency proceedings to be opened. The cumulative nature of the conditions means that if any one of them is missing, the district court rejects the petition. This is an important safeguard against abuse of the institution.

Insolvency: definition and threshold (Art. 8 ЗНФЛ)

Insolvency under the ЗНФЛ is defined through four cumulative elements: the existence of a debt, the monetary nature of the debt, that it is due, and inability to perform it. Unlike Art. 608 ТЗ, the legislator has introduced a clear quantitative and time criterion, which makes the assessment considerably easier.

When assessing insolvency, the court compares the total amount of the monetary debts that are due with the debtor’s available cash and attachable property. If the debtor has enough attachable property to cover the debts, they are not insolvent within the meaning of Art. 8. The assessment is objective and is made as at the moment the petition is filed.

The debtor’s good faith (Art. 9 ЗНФЛ)

The good-faith requirement is the key distinguishing feature of the ЗНФЛ compared with insolvency under the ТЗ. While for traders good faith is not a condition for opening proceedings, for natural persons it is an absolute requirement. The legislator has taken a two-tier approach: a positive definition in Art. 9(1) and an exhaustive list of 12 grounds for lack of good faith in Art. 9(2).

The debtor files a declaration on the standard form, which establishes a rebuttable presumption of good faith. Creditors can rebut it with written evidence, relying on any of the 12 grounds in Art. 9(2). Among them are: a conviction for an intentional general criminal offence, concealing property, making gratuitous dispositions in the last 3 years, taking on debts while knowing of insolvency, and others.

Procedure: from the petition to the decision

Insolvency proceedings against a natural person are opened solely on the debtor’s petition (Art. 31 ЗНФЛ). Unlike under the ТЗ, creditors have no right to start the proceedings. The petition is filed with the district court for the debtor’s permanent address, which is another important difference from the ТЗ, where jurisdiction lies with the regional court.

Repayment plan vs. sale of the assets

Once proceedings have been opened, the Act provides two main mechanisms for satisfying the creditors. Chapter 4 of the ЗНФЛ regulates the repayment plan, which is an agreement between the debtor and the creditors for paying the debts in instalments. If the plan fails, the proceedings move on to the sale of the assets (Chapters 5-6).

Discharge of outstanding debts (Chapter 8)

Chapter 8 of the ЗНФЛ regulates the most significant aspect of the new institution: the discharge of outstanding debts after the proceedings end. This is the essence of the “fresh start” concept, which allows the debtor who acted in good faith to be released from the accumulated debts and to start again. If the debtor has no property to cover the costs of the proceedings, the outstanding debts are discharged after a 6-year period has passed.

Comparison with insolvency under the Commerce Act

For completeness of the analysis, it is important to outline the main differences between proceedings under the ЗНФЛ and classic insolvency under the ТЗ. The two regimes are parallel and mutually exclusive as to the person concerned and the nature of the debts.

Practical questions for lawyers

Although the ЗНФЛ is already in force, the real application of the Act depends on the issuing of an order of the Minister of Justice for the creation and operation of the Insolvency Register. Until the Register is introduced, petitions to open proceedings cannot be published in the manner provided by the Act. Lawyers should watch for this order and prepare their clients in advance.

Pravko provides legal information but does not replace consultation with a lawyer. For specific cases under the ЗНФЛ, contact a licensed lawyer with experience in insolvency.