Portugal is experiencing a notable shift in its economic landscape, with personal bankruptcies declining to levels not seen in over a decade. The positive trend, detailed in new data from the Ministry of justice, comes as the iberian nation continues to recover from economic challenges including a period of austerity and the more recent disruptions of the COVID-19 pandemic. While a strong labor market and increased financial literacy are key drivers, experts caution that underlying financial pressures remain for many Portuguese families.
Personal bankruptcies in Portugal have fallen to levels not seen in over a decade, driven by a strong labor market and improved household financial literacy, though challenges remain for many families. The latest data from the Ministry of Justice shows a sharp decline in new personal insolvency decrees.
Just 1,240 personal insolvencies were declared by courts in the third quarter, a 25.3% decrease from the previous three months and a 24.9% drop year-over-year. This represents a historically low figure, comparable to the period surrounding Portugal’s bailout in the early 2010s.
Between January and March 2011, as Portugal prepared to request international financial assistance, 1,021 personal insolvencies were recorded, rising to 1,242 in the subsequent three months. This marked the beginning of an upward trend that peaked between 2012 and 2016, reaching 3,100 cases at the end of 2014. Over the past decade, the number of insolvencies has steadily decreased, stabilizing in the post-pandemic years between 1,500 and 1,800 per quarter.
An anomaly occurred between April and June 2020, during Portugal’s initial pandemic lockdown, with only 1,132 insolvencies decreed by first-instance courts. Even considering the nine months ending in September, a total of 4,612 personal insolvencies represents a 13% reduction compared to 2023. In nearly 15 years, the number of cases through September was lower only in 2021 (by 14 insolvencies) and 2020 (by 129), years when a moratorium on mortgage credit was in effect. Before that, the figures again go back to 2011 (3,593 insolvencies).
Persistent Financial Strain Despite Lower Insolvencies
A key factor driving the decline in personal insolvencies is the robust performance of the Portuguese labor market. “The truth is that our unemployment rate is historically low,” noted Natália Nunes, coordinator of the financial protection office at Deco, in a statement to Jornal Económico. António Emílio Pires, president of the Portuguese Association of Judicial Administrators (APAJ), also observed that “we are practically in a situation of full employment, with the unemployment rate at a level not seen in years.” The rate stood at 5.8% between July and September – the lowest quarterly rate in over two decades, surpassed only by 5.7% in the second quarter of 2020 and 2002.
“People are able to earn income and are more or less meeting their commitments,” Pires stated. “This has mitigated the number of insolvencies.”
However, these figures don’t indicate a complete resolution of financial difficulties. “What we are seeing now are more families with financial difficulties, but they no longer have the same problem with mortgage debt,” Nunes explained. “People are not under as much pressure because the weight of mortgage debt is not as great as it once was,” although debts related to home purchases “continue to be a significant burden.” This reduced pressure “also contributes to fewer families going to court to declare insolvency,” she added.
António Brás Duarte, vice president of the Order of Solicitors and Enforcement Agents (OSAE) – who handle these cases at a later stage – also emphasized the reduction in bad debt. “Non-performing credit is becoming an outdated term,” he said. These bank loans, unlikely to be repaid or already more than three months in arrears, accounted for only 0.8% of all loans granted to individuals in 2023 and 2024, the lowest level since at least 2009, according to the Bank of Portugal. The decline in non-performing loans signals a healthier financial landscape for Portuguese households.
Brás Duarte also believes there is now better money management by families and “a greater capacity for investment,” particularly in real estate.
Real Estate Market Provides Relief
Despite the difficulty of buying a home, the housing market itself has been part of the solution for those in financial trouble, according to Nunes. “The real estate market has significantly increased in price, which has ultimately benefited families,” she said. “We recently saw, with the rise in Euribor, people having their installments more than doubled, but they ended up finding solutions” that didn’t exist during the Troika crisis, “such as putting their house up for sale and quickly being able to sell it.” “What was a problem has ceased to be one.” Or, at least, it’s no longer a dead end: “Of course, they then have another problem, which is finding new housing, but, in a way, they are able to find solutions that do not lead to the situations of 2012 and 2013, with families, in desperation, handing over their homes to banks, proceeding with insolvency proceedings.”
Banks Adopt More Flexible Approach
Furthermore, “the banks themselves have a different approach than they did in the previous crisis,” during the bailout, Nunes highlighted. “Specifically, in finding solutions.”
During that crisis, when unemployment peaked at 16.5% in 2013, many families had to surrender their homes to pay off debts, and even then, they were often unable to settle everything they owed. As Pires, president of APAJ, recalls, “people started doing the math,” concluding that it would be easier to resort to personal insolvency – an instrument that was little used before the Insolvency Code (of 2004) and only began to be used more widely with the European debt crisis.
Nunes also pointed out that today there are “other legal instruments that safeguard the interests of banks and families,” namely legislation that “in a way, obliges banks to truly monitor the proper execution of contracts.” This means contacting customers if they see signs of deterioration, “to propose solutions that avoid default.”
In addition, “people are much more informed,” Nunes noted. For many years, “families who moved towards insolvency did not understand what was important, what were the consequences of being in this process,” while currently “there are no longer many of these reports,” she observed. Regarding financial literacy, Pires believes that “people today are more aware of easy credit.”
Could insolvencies fall further? Brás Duarte of OSAE believes that while the situation is improving, “it is important that the financial system remains attentive and prevents non-performing credit from growing again.” Nunes confessed to “some fear that these numbers will not continue to fall.” Despite observing “more available income” and several cases of “families less indebted” – some of whom “have even gone through insolvency proceedings a while ago” – they have also “resorted more to credit,” as shown by data from the Bank of Portugal. And there is still the “increase in the cost of living” and “the unknown weight of housing” to consider.
