• Considering the well-known businessman Igor Valeryevich’s comments made in an interview to the official publication that the best option for Ukraine today, like five years ago, is to declare a default, obviously at the household level the option of personal bankruptcy should be considered and individual citizens. Quoting a businessman – I don’t see anything wrong with Greece, it was declared by him and no island was lost. It can happen in the lives of entrepreneurs and employees of the hired labor that the level of monthly income will be ten times smaller than the amount of financial liabilities to creditors. No one can be sure that tomorrow will not be seriously ill, that the values ​​will not be stolen or a fire will occur. There may be another hryvnia jump that will hit foreign currency debtors. How to be in this situation or it is advisable to continue to pay, knowing that all life will not be enough to fully calculate.

    As a rule, the lender does not consider partial debt forgiveness, and the proposed restructuring will only delay and not solve the problem as a whole. If history knows the defaults of a number of states, the financial ruin of companies with huge capitalization and obviously the possibility of bankruptcy of individuals. There really is nothing wrong with that, and maybe even this is the only way to start over.

     

    On October 21, 2019, the Bankruptcy Code of Ukraine enters into force. Considering the recent hyperinflation of 2014, which caused mass non-compliance of ordinary citizens with foreign currency credit agreements, not resolving the issue of bad debtors in the executive service, after all, an outdated special law regulating bankruptcy of legal entities, all this was a prerequisite and required . By this time, the lawyers had come up with complex legal structures to declare a bankrupt a citizen, including applying to the court using the legal status of the entrepreneur.

     

    First of all it is necessary to pay attention that the initiation of the bankruptcy case of an individual can be solely by the person himself, by applying to the economic court at the place of registration.

    The Code defines a non-exhaustive list of grounds, each of which may be an occasion for bringing a person to a commercial court, namely:

    1. The amount of debt owed to one or more creditors is 30 minimum wages, which is currently 125190 UAH.
    2. The debtor does not repay the loan of more than half of the amount specified in the contract within two months;
    3. A decision by a private or public executor on a person’s absence of realizable property;
    4. Other circumstances that indicate a threat of insolvency.

     

    The reference to other circumstances makes the list of conditions for bankruptcy quite blurry and enables the court to act with considerable subjectivity. The application is subject to a court fee of ten subsistence minimums (UAH 19210).

     

    From experience we understand that the actual circumstances of life for deciding bankruptcy of oneself, create a portrait of the debtor in two variants:

    • Existing bank loan with overdue repayment of several hundred thousand US dollars (foreign currency). The pledge is a real estate market value of which is several times less than the debt. The borrower has no other assets – cars, apartments, non-residential premises. Additionally, other unsecured creditors arise and require payment of funds.
    • Already in the public bailiffs or private bailiffs there is a proceeding to recover a substantial amount of debt from the debtor. The court has issued an executive document on debt collection, at the same time the creditor continues to accrue interest or otherwise increases the claims, which will be further recognized by the court in the future. Litigation with the bank is not promising. After executing all coercive actions, realizing the auctioned property, the executor intends to return the executive document to the collector. As a consequence, the issue of real debt is not removed and the bank or factoring company may be resubmitted for enforcement. Moreover, the number of bank requests to the executive service is not limited, that is, it will be infinite.

     

    Given the expected costs in the form of – court fees, the cost of the arbitration manager and the cost of a lawyer commensurate with the debt, for such debtors – individuals, it is economically justified to initiate bankruptcy proceedings. The lower limit of the arbitration manager’s service will be five subsistence minimums over three months (UAH 28815). The new bankruptcy procedure for an individual is written out in detail and differs from the previous one for bankruptcy of legal entities in its features.

     

    The statement of initiation of insolvency proceedings shall include, inter alia: a list of all creditors and a description of the debtor’s property, indicating his whereabouts. Documents confirming the right to property are added. Quite interesting is the question of the existence of corporate rights, billing accounts, or finding real estate in other jurisdictions. Because the arbitration manager is objectively unable to verify these circumstances because it works with state registries of rights. Therefore, providing information about the property condition lies solely on the conscience of a potential bankrupt. It is also the responsibility of the debtor to have a list of creditors interested. The Code determines such persons through the lens of family and corporate, labor interdependence over the last 3 years. The new code provided for harsh action by a judge if false information was found. In that case, the court may close the case at any stage.

    The issue of choosing a specific arbitration manager is regulated differently. In the procedure under consideration, the selection will be made automatically by the system at the request of the judge. And the costs for the services of the manager must be advanced by the debtor to the deposit account of the court.

     

    From the moment of opening of the case, legal support of the bankruptcy procedure of the individual should be carried out by a competent lawyer. After all, it is necessary to establish timely, lawful joint actions of the lawyer and the elected arbitration manager, as a consequence of the court. The law provides for the sale of bankrupt property through the ProZorro electronic public procurement system.

     

    As with the general procedure, an official announcement is made to identify all creditors. We emphasize that since the opening of the proceedings in the commercial court case: 1) New arrests for property and restrictions can only be applied by a judge in this case. Similarly, it may abolish previous arrests and remove restrictions; 2) Any accrual of penalties and other financial penalties shall cease.

    The decision to open proceedings is a ground for suspending enforcement actions against the debtor. The moratorium is imposed for a period of 120 days, during which the court comes to the conclusion that the restructuring plan is approved or the debtor is declared bankrupt.

     

    The Code stipulates that the debt restructuring plan is approved at the meeting of creditors and organized by the arbitration manager. From a practical point of view, given that it was possible to agree on a schedule of debt repayment even without the start of a rather difficult bankruptcy procedure, the plans of potential debtors would have a specific purpose – to declare bankruptcy. In fact, the restructuring plan, if there is mutual agreement, can be concluded in the form of amendments to the contract or at the stage of execution of the court decision – by the court’s approval of a joint statement of change in the method of implementation. Then the involvement of the arbitration manager, who has the responsibility of overseeing the implementation of the plan, becomes simply inappropriate. In addition, there are risks of not approving the plan at the meeting if there are more than one decisive vote.

    Thus, as a practicing lawyer in Kyiv, I can predict that most litigation on a debtor’s insolvency at the end of 120 days will be aimed at recognizing an individual as bankrupt. And the purpose is to write off all existing property debts.

    The court’s decision to release the debtor from the debt does not apply to the debt for alimony and damage to health or death. Considering the Ministry of Justice’s course on protecting the interests of children raised by one parent on proper conditions of development and the significant reference to the responsibility of malicious alimony payers, the exclusion from the list of debts of alimony obligations is logical.

     

    The legislator made a warning for an individual declared bankrupt in the future to warn his counterparties before concluding new transactions (credit, loan, pledge) about the fact of his bankruptcy. Moreover, the term for which such a requirement applies is 5 years, and the warning must be in writing.

    No specific liability for failure to notify the other party of a future agreement on the debtor’s bad business reputation. Even failure to comply with this reservation cannot be a clear ground for recognizing such a contract early in the future. In fact, such actions cannot be construed as a material breach of the new contract. However, the rule is aimed at allowing a potential new lender to obtain comprehensive information about the presence or absence of bankruptcy in the past. And such information, as well as the recently created register of credit histories, the users of which are banking institutions will be the initial data for determining the risks of cooperation with such person.

     

    Before deciding on bankruptcy of a citizen, it is necessary to conduct a legal analysis of the existing dispute on the loan agreement with the bank and other circumstances of the occurrence of “arrears”. Including the status of the debtor in the enforcement proceedings. If there are no prerequisites to challenge your bank debt and you find yourself in a dire situation when arrests, bans and restrictions on going abroad will be valid for almost all of your life – bankruptcy is the only way to resolve the situation. Upon completion of the bankruptcy case, all debts are considered to be settled or written off. Even if nothing was included in the liquidation estate, or the sale of property was sufficient to pay the meager part of the debt and the services of the arbitration manager. In the time period, the services of a lawyer for legal support of bankruptcy of a citizen can take up to six months, and the analysis of the existing situation several days.