Discharge from debts as a foundation for social and economic rehabilitation

Bankruptcyshould not be seen as a stigma or punishment, but as an opportunity for a fresh start.

The legislation on bankruptcy and discharge from debts is designed to help individuals who are unable to meet their financial obligations reintegrate into economic life, free from the burdens of the past.

Once discharged, the bankrupt person is in the clear and creditors can no longer claim rights over old debts, except in cases involving fraud or dishonest behaviour. Discharge, therefore, serves as a true second chance.

The idea of discharge was introduced to promote social and economic reintegration. It is not merely a legal procedure but also a social policy tool that seeks to balance the interests of debtors and creditors.

A bankrupt person who has fulfilled the obligations of the bankruptcy process has the right to be discharged and continue life without the weight of previous debts.

Creditors, in turn, are limited to the satisfaction they receive through the bankruptcy estate. Any attempt to pursue the debtor after discharge violates public policy and the fundamental principles of bankruptcy law.

The Cyprus Court of Appeal’s position

A recent decision of the Cyprus Court of Appeal in Civil Appeal No. 117/2019 (dated October 8) reaffirms both the legal and social importance of discharge.

The court clarified that discharge provides complete legal release from previous obligations. No creditor has the right to revive or pursue claims that arose before bankruptcy.

The judgment is based on the “fresh start” principle, recognised in both case law and legal theory, highlighting that bankruptcy is a mechanism for rehabilitation, not a lifelong penalty.

The court also emphasised that discharge is not a privilege but a legal right, provided that the bankrupt person has complied with all obligations and has not acted fraudulently.

Any attempt to enforce, register, or recover a discharged debt is legally void and contrary to public policy.

This ruling confirms the social purpose of discharge, to provide a framework for economic recovery and restore public confidence in the financial system.

Legislative provisions

The discharge process is set out in the Bankruptcy (Amendment) Law of 2015 (Law 61(I)/2015). It allows a bankrupt person, three years from the date of the bankruptcy order and provided that no fraud or dishonest conduct has occurred, to be discharged from financial obligations.

Discharge is not automatic, it requires an application and a court decision, which examines the debtor’s conduct and whether discharge would be fair and justified.

The central idea is to give individuals a ‘second chance’, the ability to start over, work and contribute productively to the economy.

It would be unfair and socially harmful for a person to remain in permanent financial exile because of past debts, especially when they have acted honestly and cooperated fully.

However, the law also provides exceptions to discharge, such as debts resulting from fraud or illegal actions, fines or maintenance obligations. This ensures that the right to a second chance is not abused, but granted only to those who truly deserve it.

In practical terms, discharge allows a bankrupt person to open bank accounts, participate in companies, sign contracts and engage in business again. In other words, they return to economic life without the restrictions imposed by bankruptcy.

This does not erase past responsibilities but gives the person the opportunity to regain dignity and financial independence.

The European Perspective

At the European level, Directive (EU) 2019/1023 on restructuring and second chance encourages member states to establish discharge mechanisms for individuals, promoting entrepreneurship and innovation. By adopting this directive, Cyprus reaffirms its commitment to a modern and humane insolvency framework.

Society benefits when people are not trapped by their past. The financial rehabilitation of a bankrupt individual means the return of an active citizen, someone who can once again contribute to production, taxation and consumption.

Bankruptcy, therefore, should not be seen as the end, but as a new beginning.