Since October 21, 2019, Ukraine has a new Bankruptcy Code. It affects not only business, but also the life of ordinary people.

Now any citizen of Ukraine has the opportunity to declare bankruptcy and legally get rid of debts. Previously, only companies could do this.

That is why the new Code is unofficially called the bankruptcy law of individuals. persons.      

This is a completely new practice, and such an innovation raises questions. Is it possible for an ordinary person to more or less painlessly get rid of debt? How much is it? How to start the process and what to expect?

In this article, you will learn about the opportunities, rules, and consequences of bankruptcy proceedings for individuals.

Who and on what grounds initiates bankruptcy

A bankrupt person can become a natural person - an ordinary citizen and FLP (or FOP in Ukrainian) - an individual entrepreneur. In the law they are united by the term “debtor”.

It is the debtor who initiates the bankruptcy proceedings against himself. Neither lenders, nor government, nor anyone else can do this. To begin the process, the debtor applies to the economic court at his location.

Grounds for such appeal:

• the total amount of debts exceeds 30 minimum wages (now it is 125 190 UAH.)
• within two months, the debtor stopped repaying more than 50% of monthly payments for each obligation
• as part of the enforcement proceedings, there is a resolution on the absence of property that can be withdrawn to cover debts  
• other confirmations that the debtor cannot settle accounts with creditors or make current payments in the near future

You need to prepare for such a step. Since, together with the application, the debtor is required to submit a whole set of documents. Their complete list is specified in Article 116 of the Code.

Here are some of them:

• declaration of property, income and expenses of the debtor and members of his family for the last 3 years
• documents on transactions with property, securities, shares in authorized capital and transactions in the amount of from 30 minimum wages for the last year
• draft debt restructuring plan

In addition, before filing the application, the debtor is obliged to pay the restructuring manager for 3 months to the court’s deposit account. Now this amount is 30 105 UAH. And pay a court fee.

What happens next

Further events develop in different ways.

The court may: a) refuse and not accept the application, b) return the application to eliminate shortcomings, c) accept the application, set up a preparatory hearing and simultaneously prohibit the debtor from disposing of property (sell, give, etc.).

Suppose that the statement is all right and the court has set up a preparatory hearing.

It is there that the issue of opening a case on the insolvency of the debtor will be decided. If there are no reasons for refusal (they are indicated in part 4 of article 119 of the Code), the court shall order the opening of the case.

Bankruptcy Stages:

The case is open - the process has started. From this moment, the following rules apply:

• creditors may only make claims as part of the procedure
• property seizures and other restrictions apply only to the economic court that is considering this case, and all past restrictions can be lifted
• fines, other financial penalties and interest on liabilities cease to be counted
• moratorium on repayment of obligations to creditors is introduced
• the term for fulfillment of all monetary obligations of the debtor is considered to have come

In addition, the debtor is limited in the exercise of corporate and property rights.

Simultaneously with the opening of the case, the court appoints the manager of the restructuring. This is a specialist who will help a person restore solvency and pay off debts.

Stage One - Moratorium and Restructuring

A moratorium on repayment of obligations is introduced for 120 days from the moment of opening the case. What happens while it is acting:

• debtor stops paying debts
• enforcement penalties are stopped

This rule does not work in two cases: in enforcement proceedings related to alimony, compensation for damage from injury, other bodily harm or death, and in enforcement proceedings at the stage of distribution of money recovered from the debtor.

• no forfeit (fines, penalties), no other financial sanctions for unfulfilled requirements related to the moratorium
• the limitation period regarding claims against the debtor stops
• does not apply the inflation index for the whole time of overdue debts

During the moratorium, the manager appointed by the court draws up a debt restructuring plan and coordinates it with creditors.

The plan contains methods and procedures for debt repayment. This may be an installment plan, a deferral or cancellation of debts (parts thereof), fulfillment of obligations by third parties.

What is important: the obligatory amount that remains with the debtor after deducting monthly payments to creditors is also indicated there. It can not be less than one living wage per debtor + for each person he contains.

The term for the implementation of the restructuring plan may not exceed 5 years. If debts arose from loans for the purchase of housing, not more than 10 years. A person has the right to go to court and extend these terms if he has already paid off 80% of the debt.

At the end of this period or earlier, if the plan is completed ahead of schedule, the debtor submits a corresponding report to the economic court no later than 5 days.

The document is considered at the hearing and the results of the court:

• closes insolvency case in connection with the implementation of the restructuring plan
• makes a decision on non-fulfillment of the plan, recognizes the debtor bankrupt and introduces the debt repayment procedure.

As you can see, everything may end in restructuring. But the transition to the next stage is also possible.

The second stage - bankruptcy and debt repayment

If it was not possible to agree on a restructuring plan, the court declares the debtor bankrupt and introduces a procedure for paying off debts. For this, a property sales manager is appointed.

He takes an inventory, determines the liquidation mass and disposes of it.

The liquidation mass includes almost all property that belongs to or will belong to the debtor after it is declared bankrupt and until the debts are paid off. Also, a part in the common joint ownership may enter the liquidation mass.

What is not included in the liquidation mass:

• housing, if this is the only residence of the debtor and his family

It can be an apartment up to 60 square meters. m or living area of ​​not more than 13.5 square meters. m per family member or apartment building no more than 120 sq . m . Such housing should not be subject to security.

• money in debtor accounts in pension funds or social insurance funds
• other property that cannot be collected by law

Obviously, we are talking about things listed in the List of property, which cannot be levied on enforcement documents (addition to the Law of Ukraine "On Enforcement Proceedings" dated 02.06.2016)    

Then the property from the liquidation mass is sold , and at the expense of these funds the claims of the creditors are repaid. If the full repayment of the property was not enough, the debts are still considered written off.

Pros and cons of bankruptcy of persons

It is not yet completely clear how this procedure will work in practice. Now we can draw conclusions only on the basis of the provisions of the Code. Estimate from the point of view of the debtor.

Benefits:

• debts are debited legally
• developing a plan to resume solvency
• Remains housing and “untouchable” stock of property
• no need to communicate with creditors, everything is decided through the manager
• penalties and interest stop growing  

Disadvantages:

• court fees, managers and appraisers
• disclosed information about property, income, expenses
• for 3 years you cannot be considered a person who has an impeccable business reputation (access to certain public posts will be denied)
• within 5 years upon conclusion of credit, surety, pledge, loan agreements, other parties must be informed of their past bankruptcy

It is possible that the norms will be clarified and adjusted to our realities. However, the very possibility of bankruptcy for individuals. persons is already an important step in the fight against personal "debt holes" and insolvency.