Debt-trapped Czechs excluded as economy grows


USTI NAD LABEM, Czech Republic (Reuters) – Olga Petikova first borrowed a few hundred dollars in the 1990s to furnish her young family’s apartment. She later turned to payday loans to make ends meet as her husband struggled to make his new business a success. Debt has skyrocketed.

Ludmila Krivkova (right) and her daughter Michaela play with their dogs in their apartment in Usti nad Labem, Czech Republic on November 22, 2018. Photo taken on November 22, 2018. REUTERS / David W Cerny

Two decades later, she owes 2 million crowns ($ 86,938), 11 times her annual income, and is subject to 15 foreclosure orders on her property and much of the money reaches her bank account.

His case is not uncommon in the Czech Republic, today the richest of the ex-communist countries of the European Union.

People in the same situation often work illegally to avoid having to declare income that will be lost to repay their debts, exacerbating a labor shortage cited by nearly two-thirds of companies as a brake on growth. .

Similar “debt traps” – the result of poor financial literacy, years of loose lender regulation, costly foreclosures, and strict bankruptcy laws – are also helping to fuel support for extremist politicians in the poorest areas. poorer.

Even small debts like unpaid fines or utility bills can turn into money many will never be able to pay off. “I just tell my kids never to be like me,” Petikova told Reuters.

She now has a stable job, but most of her salary is spent paying off her debt. She manages with the help of her now adult children.

At the end of 2017, 863,000 Czechs – almost 10% of the adult population – were subject to at least one attachment order, meaning that their income above the legal minimum can be reallocated to cover debts and costs. Half of them faced four or more orders.

A total of 4.67 million foreclosure orders were pending, including for businesses, for debts with a face value of 239 billion crowns ($ 10.8 billion), or nearly 5% of the total. GDP.

In neighboring Germany, which has an eight-fold larger population, there were 2.48 million seizure orders, according to official data.

Foreclosures in Slovakia, with only half of the Czech population, were even higher, at 3.76 million at the end of 2017, but personal bankruptcies had reduced them to 2.89 million a year later.

A recent survey showed that some 60 percent of Czech companies see the lack of skilled workers as an obstacle to growth, compared to a European average of 42 percent.

Although potential workers are unwilling to work for nothing, the paperwork required to employ a seized person is also a burden on businesses, said Eva Velickova, spokesperson for the Confederation. Czech industry.

“People’s debt is a problem for both society and the economy,” Velickova said.

The Czech tough approach to debtors is rooted in the country’s transformation from communism.

Laws to encourage private enterprise passed in the early 2000s made it easier for creditors to recover their money by paying a foreclosure agent to collect the debt.

Agent fees were once so lucrative that some offered to pay more than 100% of face value for small, hard-to-collect debts, according to Daniel Hule of People in Need, a human rights group that focuses on the national level. on social exclusion.

(For a graph on ‘Czech seizure orders on the rise’, click

“We let the law bend against society, in favor of various interest groups. This is the main problem, ”Hule said. “Rather than the (Czech) population being delinquent, it is a relic of a bad system.”

The fees are lower now, but a standard foreclosure process can quickly turn a debt of around KKr 1,000 – the fine for taking public transport without a ticket – into around KKr 10,500, according to a calculator on the site. People In Need Web.

In Germany, the equivalent figure would be around 3,900 crowns.

(For a graph on “Cost of Czech Debt”, click on


Garnishment of income can leave debtors as little as 6,225 crowns ($ 273.23) per month, a quarter of the average take home pay of a single person. Half of the foreclosures concern debts of 10,000 crowns or less.

This can be boosted by social assistance benefits, but these are lost as income increases – removing any incentive to earn more. A 2016 study for the Minister of Human Rights found that tens of thousands of people were working only illegally due to account foreclosures.

“Debtors lose their motivation not only to work harder, but to work at all, they often drift into the shadow economy,” said Ladislav Mincic, chief analyst at the Czech Chamber of Commerce. “In border regions, many of them are fleeing the country in order to avoid seizure orders. “

With an unemployment rate at its lowest level in twenty years of 2.8%, there were only 193,000 workers available for 324,000 vacancies in November.

The harsh treatment of debtors has often fueled support in poor areas for far-right and far-left political parties. The region of Usti nad Labem, near the German border, where 18% of the population have seizure orders, is the electoral stronghold of the Communist Party.

“Extreme parties get (votes) from those around them, who see higher crime rates, money leaving the area and poorer service delivery. This is all linked to the seizure orders, ”said Daniel Prokop, a sociologist at the Median polling agency.

Debt problems even weigh on thousands of children, according to People in Need, who helped Lidka, a 15-year-old orphan, take her case to the Constitutional Court.

Lidka, who only gave her first name when speaking to Reuters in Pilsen, said she owed 40,000 crowns after being taken twice on public transport without a ticket – aged six and 11. The court ruled in 2017 that she had to pay the original tariff. and the fine – about 2,000 crowns.


A decision by the authorities to allow non-bank lenders has led to the withdrawal of almost 90% from the market. There are about 85 left.

About 20,000 people a year file for personal bankruptcy in the hope of escaping their debts.

But the rules are strict: For bankruptcy to be declared, a debtor must prove that he can pay at least 30% of what he owes within five years. Courts can now waive it, but only retroactively after five years.

In Germany and Slovakia there is no threshold.

Ludmila Krivkova, 42, owes 850,000 crowns on 14 loans taken out over five years.

One of the companies she used, Pujcka7, announces a 14-day KKr 5,000 loan that turns into a KKr 5,946 repayment – an annual debt service cost of 9,064%, according to one calculation on the lender’s website. Pujcka7 did not respond to requests for comment.

“I took out a loan to renovate our daughters’ room, and then also to buy food. And then the circle started, paying off a loan with another loan, ”she said in her apartment in Usti.

People in Need helped Ludmila to file for personal bankruptcy. After five years, she will be out of trouble, as long as she continues to pay 6,200 crowns each month for her debts.

This leaves 5,000 crowns for his family. Thanks to social benefits and alimony, she is doing well.

“There were force agents, calls from hidden phone numbers, letters,” Ludmila said. “It’s over … It’s quiet now.”

Report by Robert Muller; Additional reporting by Arno Schuetze in FRANKFURT and Tatiana Jancarikova in BRATISLAVA; Graphics by Jason Hovet; Editing by Jan Lopatka and Catherine Evans


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