Legal Framework
The insolvency of traders in Bulgaria is governed by the following legislative acts:
- Commerce Act (CA), Part Four, Art. 607–760 — the main body of legislation governing the opening, conduct and conclusion of insolvency proceedings for traders.
- Amendments to the CA (SG No. 66/2023) — transposition of Directive (EU) 2019/1023 on preventive restructuring frameworks, discharge of debt and measures to increase the efficiency of insolvency proceedings. These amendments introduce more flexible restructuring mechanisms and accelerate the procedure.
- Personal Insolvency Act — NEW: adopted and in force since July 2025. For the first time in Bulgarian legal history, this Act allows natural persons (except sole traders) to undergo insolvency proceedings and debt discharge.
- Civil Procedure Code (CPC) — applicable on a subsidiary basis for procedural matters not regulated in the CA.
Grounds for Opening Proceedings
The Commerce Act provides for two independent grounds for opening insolvency proceedings:
Insolvency (Art. 608 CA)
A trader is insolvent when unable to fulfil a due monetary obligation arising from or relating to a commercial transaction, including its validity, performance, non-performance, termination, annulment and rescission, or the consequences of its termination, as well as a public-law obligation to the state and municipalities related to the commercial activity.
The law establishes a rebuttable presumption of insolvency upon cessation of payments — if the trader has ceased paying its obligations, it is presumed to be insolvent unless it proves otherwise.
Over-indebtedness (Art. 742 CA)
Over-indebtedness is a ground for insolvency only for capital companies (LLC, JSC, DPK, limited partnerships with shares). A company is over-indebted when its assets are insufficient to cover its monetary obligations (balance sheet test). Unlike insolvency, here the debtor's entire assets are assessed against all its liabilities.
Who May File a Petition?
A petition for opening insolvency proceedings may be filed by:
- The debtor — the trader is obliged to file a petition within 30 days of the occurrence of insolvency or over-indebtedness. Failure to comply is grounds for personal liability of the management bodies;
- A creditor under a commercial transaction with a due claim, a creditor with a public-law claim related to the commercial activity, or a creditor with a private-law claim;
- The National Revenue Agency (NRA) — where there are public-law obligations (tax, social security) related to the debtor's commercial activity.
The petition is filed with the district court at the debtor's registered office.
Stages of the Court Procedure
Insolvency proceedings pass through nine main stages:
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Filing the petition and first hearing (up to 30 days)
The court examines the petition and schedules a first hearing within 30 days. At the hearing, the debtor and creditor (in the case of a creditor petition) are heard, and the evidence for the existence of grounds for insolvency is assessed.
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Decision to open proceedings
By its decision, the court: determines the initial date of insolvency (which may be up to 4 years back), appoints a provisional trustee, orders interim measures (attachment, injunction), imposes a general attachment and injunction on the debtor's assets and allows preliminary enforcement of the decision.
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First creditors' meeting (up to 1 month)
Within 1 month of the opening decision, a first creditors' meeting is convened. The creditors elect a permanent trustee and a creditors' committee (if desired). The trustee assumes management of the debtor's assets.
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Filing of claims
Creditors file their claims with the trustee within a minimum 1-month period from the entry of the decision in the Commercial Register. Late filing is also permitted — up to 2 months after expiry of the main period, with late-filing creditors not participating in distributions made before their filing.
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Acceptance and rejection of claims
The trustee prepares lists of accepted and rejected claims. Creditors and the debtor may file objections within a 7-day period. The court rules on the objections by order, which is subject to appeal.
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Restructuring Plan
The restructuring plan may be proposed by the debtor, the trustee, creditors holding more than 1/3 of secured claims, creditors holding more than 1/3 of unsecured claims, partners/shareholders holding more than 1/3 of the capital, or unlimited liability partners. The plan is proposed within 1 month after the list of accepted claims is published.
Voting is carried out in 5 classes of creditors: secured, employees, public-law, unsecured and creditors under Art. 616 CA. The plan is accepted if creditors holding more than half of the claims in each class vote in favour. The court may confirm the plan even without unanimity of all classes (cram-down), if the plan is fair and does not place the dissenting class in a less favourable position than in liquidation.
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Liquidation of assets
In the absence of a restructuring plan or if it is not confirmed, the court declares the debtor insolvent and proceeds to liquidate the assets — converting them into cash. Liquidation of assets is carried out through public sale (the primary method), direct sale (by decision of the creditors' meeting) or sale of the enterprise as a whole.
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Distribution (Art. 722 CA)
The collected funds are distributed among creditors according to 12 Priority Ranks established in Art. 722 CA (see table below). Claims of a higher rank are satisfied in full before proceeding to the next rank. Within a single rank, satisfaction is pro rata (proportional).
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Conclusion of proceedings
Proceedings are concluded upon: full satisfaction of all creditors, exhaustion of the debtor's assets, confirmation and implementation of a restructuring plan, or failure of a creditor to file a petition for continuation.
Twelve Priority Ranks of Claims (Art. 722 CA)
Upon distribution of the realised assets, claims are satisfied in the following order:
| Rank | Type of Claim |
|---|---|
| 1 | Claims secured by pledge or mortgage — from the value of the security |
| 2 | Claims where the debtor has exercised a right of retention — from the value of the retained property |
| 3 | Costs of the insolvency (trustee remuneration, court costs, etc.) |
| 4 | Claims arising from employment relationships that arose before the date of the opening decision |
| 5 | Claims for statutory maintenance |
| 6 | Public-law claims of the state and municipalities (taxes, social security, fines) |
| 7 | Claims arising after the date of the opening decision, related to the continuation of operations |
| 8 | Unsecured claims (ordinary trade creditors) |
| 9 | Claims for interest, penalties and creditor costs — after the date of the opening decision |
| 10 | Claims on loans provided by partners or shareholders |
| 11 | Claims under gratuitous transactions (donations) |
| 12 | Claims for financing the insolvency procedure (new financing) |
This order is mandatory and cannot be altered by the will of the parties. Understanding it is key for every creditor, as it determines the actual chances of satisfaction.
Restructuring Plan
The restructuring plan is a mechanism for rescuing the debtor's viable enterprise as an alternative to liquidation. The plan may include the following measures (individually or in combination):
- Deferral — rescheduling payments to creditors for a specified period;
- Discharge — partial or full discharge of debts;
- Reorganisation — restructuring the enterprise (merger, division, spin-off);
- Debt-to-equity conversion — converting liabilities into shares in the debtor's capital;
- Sale of the enterprise as a whole or of separate parts thereof.
Following the transposition of Directive 2019/1023 (with the 2023 CA amendments), the restructuring procedure has been significantly accelerated and simplified. More flexible voting rules and the cram-down mechanism have been introduced, allowing the court to confirm a plan even if not approved by all classes of creditors, provided it is fair.
In practice, insolvency proceedings in Bulgaria last between 3 and 7 years, with restructuring plans remaining relatively rarely accepted. The 2023 amendments are expected to gradually change this trend.
Personal Insolvency (NEW)
The Personal Insolvency Act, in force since July 2025, introduces for the first time in the Bulgarian legal system the possibility of personal insolvency. The main parameters of the new law are:
- Admissibility threshold — the total amount of the natural person's debts must exceed 10 minimum wages (approximately EUR 5,508 as of 2026);
- Duration of difficulties — the person must have been unable to pay their debts for a period of at least 12 months;
- Good faith — a mandatory condition. The person must not have become insolvent intentionally or through gross negligence (e.g. assuming obligations knowing they cannot be fulfilled);
- One-time use — a natural person may use the personal insolvency procedure only once in their lifetime;
- Exceptions — the law does not apply to sole traders, who are subject to the regime under the Commerce Act.
The procedure under the Personal Insolvency Act includes preparation of a repayment plan, the possibility of discharging the remaining balance after good faith compliance with the plan, and rehabilitation of the debtor. The Act aims to give a "second chance" to good faith debtors who have fallen into persistent insolvency.
Frequently asked questions
Need assistance?
The Innovires team can advise you at every stage of insolvency proceedings — from assessment of grounds to court representation and participation in the restructuring plan.