Dishonesty in Discharge of Debts: A Law and Economics Perspective on Czech Insolvency Law
Dishonesty in Discharge of Debts: A Law and Economics Perspective on Czech Insolvency Law

Author(s): Milan Vrba
Subject(s): Law, Constitution, Jurisprudence, Law and Transitional Justice, Law on Economics, Commercial Law
Published by: ADJURIS – International Academic Publisher
Keywords: Discharge of Debts; Dishonest Intent; Economic Analysis of Law; Insolvency Proceedings; Personal Bankruptcy; State-Preference Model;
Summary/Abstract: Honesty is deemed a central principle of the procedure leading to discharge of debts. A debtor seeking debt relief is obliged to maximise satisfaction for creditors while refraining from any actions that could harm or favour any of them. In accordance with Becker’s classical theory of crime, the paper assumes that the debtor’s decision to act (dis)honestly is a matter of rational choice. The debtor chooses between the certainty of honest performance of duties and the risky alternative of dishonesty. The aim of the paper is to provide an analytical framework for understanding this decision-making process and to identify how legal and institutional factors can influence it. To illustrate this, the paper applies a basic state-preference model. The model demonstrates that the debtor’s ultimate decision is shaped by three key variables: (1) the potential gain from dishonesty, (2) the severity of sanctions, and (3) the likelihood of detection and punishment of dishonest conduct. Each of these variables is subsequently analysed in the context of Czech insolvency regulation, highlighting how the legal framework can influence the debtor’s incentives.

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