Bancruptcy of individuals

Debts become time- barred two years after bankruptcy

Once bankruptcy proceedings have been concluded, a two-year limitation period begins to run.

Debts become time-barred (are extinguished) once two years have passed since the conclusion of the proceedings, unless the limitation period is interrupted. Please note that the two-year limitation period does not apply to claims by the Icelandic Student Loan Fund (Menntasjóður námsmanna) (student loans)

Interrupting the limitation after bankruptcy

Interrupting the limitation period means that a new limitation period begins to run. When the limitation period is interrupted, the debt or claim remains valid.

• An individual can themselves interrupt the limitation period during these 2 years by making a payment or acknowledging the debt, e.g. through a payment agreement. Wage deductions do not interrupt the limitation period.

• A creditor can only interrupt the limitation period by obtaining a court judgment recognising the interruption of the limitation period. There are strict conditions for obtaining such a judgment.

Creditors are permitted to continue debt collection during the two-year limitation period. During this period, you can therefore expect to keep receiving demands for payment.

If an individual does not wish to interrupt the limitation period, they should not respond to collection attempts by making a payment or entering into a payment agreement while the two-year limitation period is running.

Salary deduction

• Collectors of state revenue (the Iceland Revenue and Customs and district commissioners outside the capital region) are authorised, within a two-year limitation period, to require an employer to withhold up to 75% of wages on account of unpaid state and municipal taxes.

• The District Commissioner is authorised, within the two-year limitation period, to require an employer to withhold up to 50% of wages in respect of child maintenance arrears.

• It is possible to arrange a payment plan for a reduction in wage deductions with the Directorate of Internal Revenue (Skatturinn) and the District Commissioner, and this does not interrupt the limitation period.

The District Commissioner may decide that an alternative sentence for fines will be applied within the two-year limitation period.

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