Became Insolvent During a Loan?! – Is the Law Against You?
07-08-2026 10
- Became Insolvent During a Loan?! – Is the Law Against You?
- The law or its purpose, especially that of the Civil Code, is an agreement on the rules of the game, approved by the Parliament, which must subsequently establish "rules of fair play" within society and among its members. Rules of fair play can never be fully achieved in every given circumstance; the entire essence lies in striving toward them and establishing them.
- This is precisely why various terms exist, including the principle of the rule of law (a state governed by law). The principle of the rule of law does not merely mean the supremacy of law in its broad sense; it signifies the recognition of fairness as the supreme principle. There is no undemocratic state that does not opt for the supremacy of law; moreover, undemocratic behavior is precisely the weaponization of legality against fairness. To counter this, there must be a Parliament—a space for the clash of ideas, where, as our Georgian poet Shota Rustaveli said, "we possess countless colors" (referring not to a color palette, but to the collision of different ways of thinking). This is where refined "rules of the game" must be born, where the majority is not the sole ruler, but the well-argued opinion of the minority, if superior, is accepted and implemented;
- I would not write this much, nor is it my purpose as an attorney, but in most cases, democracy in our country remains in the realm of perception. Meanwhile, democracy in Georgian translates to good faith (integrity), and conscientious governance means the "rules of fair play" adopted by this ruler, where the legally stronger party is not granted an advantage by default or coercion. This does not mean "equating the weak to the strong by the force of law," but making the rules such that the strong party has no desire to tailor them to itself.
- Conscientious governance today is democracy, which in turn means true justice—one that has a beginning but should have no end. True justice does not mean subjective perception; it is objective, like many things that should allow us to have a fair society and not the other way around.The purpose of the Parliament and/or the legislative body is to focus on these issues. If anyone imagines that the legislative body is merely an "I will speak, but I am not responsible for my words" organ, they are gravely mistaken. The illusions that accompany publicity are as futile as arguing that water should not be colorless.
- The Parliament provides the court with the law; it provides the law to both the strong and the weak (legally). Consequently, if we, as a society, fail to see the essence of the entire problem—that we need the "countless colors" in practice—and only restrict ourselves to criticizing the executive branch and/or the judicial system, nothing will change.Our Civil Code was adopted in 1997, when the digital age had not yet arrived. Furthermore, while it was progressive for its time, it should not remain in a static state. This is explained by the essence of the question posed in the title of this article: just as loans are characteristic of a market economy, so are their side effects, such as the subsequent inability to repay, insolvency, etc. This is exactly where the issue I will explain begins.
- Article 367 of the Civil Code of Georgia states: "If a period has been fixed for the performance of an obligation in favor of the debtor, the creditor may immediately demand performance if the debtor has become insolvent, or has reduced the promised security, or has failed to provide it at all."
- a) Let us say Giorgi is employed. To start a family, he decides to take out a mortgage loan from a bank, meaning he receives a certain amount of money in exchange for the loan, and secures it by mortgaging his future residence.
b) Suppose the loan agreement is issued/signed for a term of 10 years, and Giorgi undertakes the obligation to pay 950 GEL per month to cover the mortgage. Let us add to this example that Giorgi is employed on an indefinite basis, having worked for the same employer for 5 years.
c) For instance, 2 years after taking the loan, the employer terminates Giorgi's employment contract without grounds. Let us view the issue more severely and say Giorgi is dismissed illegally (which will eventually be proven by a court).
d) For 2 years, Giorgi has not had a single overdue payment regarding the loan, conscientiously paying 25% of his earned salary. Giorgi decides that since he has no violations, he will approach the bank and inform them that he "was dismissed from work," and therefore will temporarily be unable to pay the amount, asking them to give him a grace period of a few months, additional time, etc; - It is probably easy to imagine how many "Giorgis" have found themselves in a similar situation and how many have approached the bank with such a notification (be it loss of a job, business suspension, or another objective reason). This is where the operation of this article begins. The article specifies, "if the debtor has become insolvent" (what reducing or failing to provide promised security means is a different legal dimension and I will explain that another time). It is noteworthy that the legal concept of "insolvency" no longer strictly applies to natural persons, but it remains in the current edition of the Civil Code; however, modern judicial practice almost equates this term with dismissal from employment;
- Let us return to Giorgi. Giorgi approached the bank and requested that since he was dismissed, the bank "show understanding of his situation." At this point, the law says the following: "If a period has been fixed for the performance of an obligation in favor of the debtor, the creditor may immediately demand performance." In simple terms, based on Giorgi's example, this means the following: A 10-year loan was signed between Giorgi and the bank, meaning Giorgi had to pay 950 GEL per month for 10 years, which in legal terms translates to: "If a period has been fixed for the performance of an obligation in favor of the debtor."
- The bank can choose not to wait to see if Giorgi defaults on the loan two or three times. Moreover, based on the submitted application—since Giorgi informed the bank of his dismissal—the bank can immediately terminate the agreement with Giorgi and not wait to receive payments over the remaining 8 years, because Giorgi became insolvent (the creditor may immediately demand performance). The law's approach is indeed such. On the one hand, the person is a conscientious payer; he has not had a single failure to perform the loan obligation. But because he was dismissed from his place of employment, the bank is authorized to terminate the contract for this reason and demand full performance. This means, especially regarding the court, that while Giorgi is litigating his illegal dismissal on his own, the bank is demanding the alienation of his real estate, meaning Giorgi no longer even has time...
- Judicial practice, indeed, views it this way because this is how the law reads directly. In such a case, the law sides with the strong, allowing the legally stronger party to fully protect its interests—and so what if the stronger party has no obligations alongside this right? True justice does not mean a mere set of rules; a proper set of rules means that wherever a right exists, an obligation must also exist. A right without an obligation becomes an instrument for the strong to oppress the weak even more;
- Many readers of this might think that this constitutes force majeure, etc. I must disappoint them by stating that the Georgian Civil Code does not recognize it in the classical sense, because force majeure causes a postponement, not an exemption or cancellation of the obligation. The principle that "a contract must be performed at all costs" runs as a leitmotif through our Code. Conversely, the Civil Code recognizes, for example, Article 399, Paragraph 1: "Any party to a contract may, for a valid reason, terminate a long-term continuous obligation without observing the time limit set for the termination of the contract. A reason is valid when, taking into account specific circumstances, including force majeure and the mutual interests of the parties, the terminating party cannot be expected to continue the contractual relationship until the expiration of the agreed term or the period set for termination" (it should be noted here that the term "long-term," which implies a fixed-term contract but applies to all contracts, is misunderstood by many; this is a translation issue that no one corrects);
- Furthermore, judicial practice or theory does not establish this article as a prerequisite for the application of Article 367 and for assessing whether the reason is valid. More importantly, it does not establish Article 398 of the same Code (the Georgian force majeure) as a precondition for its application: "If the circumstances that became the basis for concluding the contract have manifestly changed after the conclusion of the contract, and the parties would not have concluded this contract or would have concluded it with different content had they foreseen these changes, then the adaptation of the contract to the changed circumstances may be demanded. Otherwise, taking into account individual circumstances, a party to the contract cannot be strictly required to adhere to an unmodified contract." Because it considers the circumstances as objective facts not dependent on Giorgi but on the employer (which is still not considered an objective circumstance), judicial practice does not provide a clear answer to the rest;
- Ultimately, a specific article of the law, which is an independent basis for demanding early performance of an obligation, acts "as it pleases" in such a way that its application does not uniformly involve the possibility of utilizing other articles. On the one hand, the law says this; on the other, the court follows the law; and thirdly, our Giorgi is left alone with his problems. Ultimately, who is the main antihero in this? I do not have an answer to this, nor should I, because an article cannot be inherently good or bad—it is created by humans, and humans bear responsibility for what they create. For example, if a second article were added to this one, stipulating that in such a case the creditor (the bank) must ensure or make an effort to adapt the contract to the changed circumstances, who would lose what in a legal sense? No conscientious debtor denies that an obligation must be fulfilled, but the main question is: under what conditions?! If I am the legally weaker party, what means of protection does the law offer me?! Ultimately, is it solely the duty of lawyers to publish articles highlighting the problematic nature of such issues, or should the Parliament, the legislative body, be doing this?!
- I wrote that introduction at the beginning of the article precisely because "we possess countless colors" means exactly this. On the one hand, a leftist would certainly tell me that creditor rights should be maximally curtailed; a rightist would tell me that the current state of creditor rights is very good. Their argumentation and debate would allow society to have its say on which is better. Ultimately, I am sure the fair arguments of both sides would allow us to say that this article, with its amendments, is a more or less fair rule of the game, which would give a Giorgi who "lost" his job some time to find a new one and continue his activities;
- Democracy is manifested in this and nothing else, and its Georgian equivalent—conscientious governance—means exactly this: when a Member of Parliament who has never heard of or seen Giorgi, tries to establish fair rules of play for Giorgi, for a stranger, but a citizen of Georgia, meaning a Georgian. And yes, for me, this is Georgian, my tradition—when you strive for the stranger yet fellow man, when your own tradition from "The Knight in the Panther's Skin" calls out to you, and not only from there: "The execution of true justice makes a dry tree bloom.";
- As a piece of advice, a priori, I would advise Giorgi: if you are dismissed from your workplace and/or due to other circumstances you are unable to pay the loan under the same conditions, do not rush to apply to the bank or the lender. By doing so, you might give them a basis to make things worse for you, as this is how the law views your situation;
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