The National Law Center for Inter-American Free Trade, in a 2002 publication on bankruptcy law developments in Latin America, explains that Guatemalan legislation only covers insolvency and bankruptcy with respect to procedural matters. Substantive rules in the Commercial Code were repealed in 1970. In Guatemala, individual and commercial debtors are governed by the same bankruptcy rules. The 1963 Civil and Mercantile Procedure Code provides for three types of proceedings: (1) voluntary insolvency, (2) involuntary insolvency, and (3) bankruptcy. With respect to financial institutions, Decree 9/2002 introduced a mechanism for transferring assets and liabilities between these institutions when they face economic difficulties. Overall, however, there is insufficient information publicly available as to Guatemala's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank.

General Overview

According to a 2002 National Law Center for Inter-American Free Trade (NLCIAFT) publication on bankruptcy law in Latin America, Guatemala does not provide substantive bankruptcy rules. Rather, it only covers procedural matters, which are set forth in the 1963 Civil and Mercantile Procedure Code. Originally, the Commercial Code covered some substantive bankruptcy rules, but these were repealed in 1970. The NLCIAFT report states that "this lack of specific bankruptcy and insolvency legislation has resulted in a legal vacuum that has hampered the ability of creditors to take effective, retroactive measures to define the assets and liabilities of the bankruptcy estate" (p. 131).

In Guatemala, individual and commercial debtors are governed by the same bankruptcy rules. With respect to financial institutions, a 2002 decree introduced a mechanism for transferring assets and liabilities between these institutions, should they face economic difficulties. There are three insolvency proceedings in Guatemala: (1) voluntary insolvency, (2) involuntary insolvency, and (3) bankruptcy. If a debtor wants to avoid bankruptcy or dismiss a bankruptcy preceding that has already been initiated against him, he can declare voluntary insolvency. Involuntary insolvency follows on the initiative of the creditor. These insolvency proceedings aim at reaching an agreement that will guarantee the payment of all qualified creditors. Bankruptcy, on the other hand, deals with the liquidation of all assets of the debtor for the purpose of distribution; it should be noted, however, that some creditors, such as mortgagees and secured creditors, are exempt from the distribution.

According to the World Bank "Doing Business" assessment, in 2006, the time and cost required to resolve bankruptcies in Guatemala was 3 years and 14.5% (of the estate) respectively compared with a regional average of 2.6 years and 13.6% and an OECD average of 1.4 years and 7.1%. The recovery rate in Guatemala was 28.3, compared with the regional average of 25.7 and OECD average of 74.0. The Recovery Rate measures the efficiency of foreclosure or bankruptcy procedures, expressed in terms of how many cents on the dollar claimants recover from the insolvent firm (2006).