Skip to content "Defense in Crime" Bar Association
Bankruptcy of individuals: what to consider when applying to court
In 2005, I took out a mortgage for personal living in a bank. The loan was taken out in currency. Currently, I have a large debt to the bank due to the fact that I lost my job and do not have a steady income. I heard that there is a procedure for the bankruptcy of individuals, which allows for the cancellation of debts that a person cannot pay. Therefore, I request clarification: can I use this bankruptcy procedure as an individual, and where to start?
On April 21, 2019, the Code of Ukraine on Bankruptcy Procedures (hereinafter – CUzPB) came into force, which was introduced on October 21, 2019. The CUzPB allows for the restructuring of an individual’s debt and this can be done through the court. Such an initiative allows for the partial write-off of debt and partially satisfies the demands of all stakeholders.
According to the Ukrainian Bankruptcy Code, an individual has the right to declare bankruptcy and get rid of their debts. This is particularly useful when it comes to debt on foreign currency loans (mortgages), consumer loans, car loans, microloans, and the like.
According to the Ukrainian Bankruptcy Code, an individual has the right to declare bankruptcy and get rid of their debts. This is particularly useful when it comes to debt on foreign currency loans (mortgages), consumer loans, car loans, microloans, and the like.
Can an individual be bankrupt?
Part 1 of Article 2 of the Ukrainian Bankruptcy Code provides that bankruptcy proceedings are regulated by this Code, the Commercial Procedure Code of Ukraine, and other laws of Ukraine.
According to Book 4 of the Ukrainian Bankruptcy Code, “Rehabilitation of the Solvency of an Individual,” it establishes conditions and procedures, including the restoration of the solvency of an individual.
Article 1 of the Ukrainian Bankruptcy Code defines insolvency as the inability of a debtor to perform monetary obligations to creditors after the established deadline, except through procedures provided for by this Code.
According to Part 2 of Article 6 of the Law of Ukraine “On bankruptcy”, the following legal procedures are applied to an individual debtor:
—restructuring of the debtor’s debts;
— repayment of the debtor’s debts.
The procedure for repayment of the debtor’s debts is introduced in the insolvency case together with the recognition of the debtor as bankrupt.
Repayment of the debtor’s debts is a legal procedure in the case of insolvency of an individual, which is applied to satisfy the claims of creditors through the sale of the bankrupt’s property, recognized as bankrupt in the manner established by the Code.
Part 2 of Article 209 of the Commercial Code of Ukraine defines that the inability of the debtor to restore its solvency and satisfy the court-recognized claims of creditors other than through the application of the court-defined liquidation procedure is considered bankruptcy.
Therefore, an individual has the right to resolve the issue of their “problematic” credit by initiating bankruptcy proceedings.
Note that the Creditor (usually banks and other financial institutions that previously actively lent to individuals) do not have the right to initiate bankruptcy proceedings against an individual debtor.
Repayment of the debtor’s debts is a legal procedure in the case of insolvency of an individual, which is applied to satisfy the claims of creditors through the sale of the bankrupt’s property, recognized as bankrupt in the manner established by the Code.
Part 2 of Article 209 of the Commercial Code of Ukraine defines that the inability of the debtor to restore its solvency and satisfy the court-recognized claims of creditors other than through the application of the court-defined liquidation procedure is considered bankruptcy.
Therefore, an individual has the right to resolve the issue of their “problematic” credit by initiating bankruptcy proceedings.
Note that the Creditor (usually banks and other financial institutions that previously actively lent to individuals) do not have the right to initiate bankruptcy proceedings against an individual debtor.
Documents and conditions for declaring an individual bankrupt
According to Article 115 of the Bankruptcy Code, proceedings regarding the insolvency of a debtor, including an individual, can only be initiated upon the debtor’s application.
The debtor has the right to apply to the commercial court for the initiation of insolvency proceedings if:
1) the amount of overdue debt of the debtor to the creditor(s) is equal to or greater than 30 times the minimum wage;
2) the debtor has ceased to repay loans or make other scheduled payments in an amount exceeding 50 percent of monthly payments for each of the credit and other obligations within two months;
3) a decision has been made in the enforcement proceedings regarding the absence of property of the individual on which recovery can be made;
4) there are other circumstances indicating that the debtor will not be able to fulfill monetary obligations or make ordinary current payments in the near future (risk of insolvency).
Fines, penalties, and other financial sanctions are not included in monetary claims, including tax and fee payments, according to Article 116 of the Bankruptcy Code.
According to Article 116 of the Bankruptcy Code, the debtor files an application for the initiation of insolvency proceedings if there are grounds provided for by this Code.
The statement for opening proceedings on insolvency shall include the following:
1) the name of the commercial court to which the application is made;
2) the name of the debtor, their place of residence, taxpayer identification number, and passport number (for individuals who refuse to obtain a taxpayer identification number due to religious beliefs and have notified the relevant supervisory authority, with a note in their passport), the debtor’s means of communication number, and their email address (if available);
3) a statement of the circumstances that gave rise to the application to the court;
4) a list of the documents attached to the application.
The application for the opening of insolvency proceedings shall be accompanied by:
1) a power of attorney or other document certifying the authority of the representative, if the application is signed by a representative;
2) documents confirming the debtor’s status as an individual entrepreneur or confirming its absence;
3) a detailed list of creditors and debtors, indicating the total amount of creditors’ (debtors’) monetary claims, as well as the name or business name, place of residence or location, identification code of a legal entity or taxpayer identification number and passport number (for individuals who refuse to obtain a taxpayer identification number due to religious beliefs and have notified the relevant supervisory authority, with a note in their passport), the amount of monetary claims (total amount of indebtedness, indebtedness under the principal obligation, and the amount of penalties separately), the grounds for the obligations, and the deadline for their fulfillment in accordance with the law or the contract;
4) a description of the debtor’s property, owned by them on the right of ownership, with the indication of the location or storage of the property;
5) copies of documents confirming the debtor’s ownership right to the property;
6) A list of property that is pledged as collateral (mortgage) or otherwise encumbered, its location, value, as well as information about each creditor in whose favor the debtor’s property is encumbered – name or designation, location or place of residence, identification code of a legal entity or registration number of a taxpayer identification card, and passport number (for individuals who, due to their religious beliefs, refuse to accept a registration number of a taxpayer identification card and have officially notified the relevant supervisory authority and have a note in their passport), the amount of monetary claims, the basis for the obligations, as well as the term of their performance in accordance with the law or contract.
7) Copies of documents regarding the debtor’s (within a year prior to the date of filing the application for insolvency proceedings) transactions related to their immovable property, securities, shares in the authorized capital, vehicles, and agreements with a value of no less than 30 times the minimum wage.
8) Information about all existing accounts of the debtor (including deposit accounts) opened in banks and other financial institutions in Ukraine and abroad, their details, indicating the amounts of money held in these accounts.
9) a copy of the employment record book (if available);
10) information about the debtor’s employer(s);
11) declaration of the debtor’s financial status according to the form approved by the state body for bankruptcy matters;
12) evidence of the debtor’s advance payment of the remuneration for the restructuring manager for three months of fulfilling their duties into the court’s deposit account;
13) information about the presence (absence) of any outstanding convictions for economic crimes;
14) other documents confirming the grounds specified in Article 115 of this Code.
Together with the application for the commencement of insolvency proceedings, the debtor is obliged to submit proposals for debt restructuring (a debt restructuring plan project).
The declaration of financial status is submitted by the debtor for three years (for each year separately) preceding the submission of the application for the commencement of insolvency proceedings to the court. The declaration should contain information on the debtor’s and their family members’ property, income, and expenses exceeding 30 times the minimum wage.
Family members of the debtor include persons who are married to the debtor (including those whose marriage has been dissolved within three years before the declaration is submitted), their children, including adult ones, parents, persons who are under the debtor’s care or guardianship, other persons who live with the debtor, share common household and have mutual rights and obligations (excluding persons whose mutual rights and obligations with the debtor do not have a family nature), including persons who live together but are not married.
If there are no grounds for refusing to accept the application for the commencement of insolvency proceedings or for returning such an application, the commercial court shall issue a ruling on the acceptance of the application for consideration no later than five days from the date of receipt of the application (Article 117 of the Code on Bankruptcy Procedures).
Restructuring of a physical person’s debts
According to Article 124 of the Law of Ukraine “On the Rehabilitation Procedure of Debtors”, the plan for restructuring a debtor’s debts is developed with the aim of restoring the debtor’s solvency.
The plan for restructuring a debtor’s debts includes:
1) the circumstances that caused the debtor’s insolvency;
2) information about the court-recognized claims of creditors, indicating their size and order of satisfaction;
3) information about the debtor’s property status as a result of measures taken to identify and describe the debtor’s property (inventory);
4) information about all of the debtor’s income, including income that the debtor expects to receive during the debt restructuring procedure;
5) the amount of money that will be allocated each month to pay off the creditors’ claims;
6) the creditors’ claims against the debtor that will be forgiven (written off) if the debt restructuring plan is fulfilled;
7) the amount of money that the debtor will be allowed to spend on household needs each month, not less than the subsistence minimum for the debtor and for each dependent.
The plan for restructuring a debtor’s debts may also include provisions regarding:
1) the sale of part of the debtor’s property in the debt restructuring procedure, including property that serves as collateral, the priority, timing, and funds expected to be received from such sales;
2) changes to the method and order of fulfilling obligations, including the size and terms of debt repayment;
3) deferral or installment payment, or forgiveness (write-off) of the debts or their parts;
4) the fulfillment of the debtor’s obligations by third parties, including by entering into surety, guarantee, and other civil law agreements;
5) other measures aimed at improving the debtor’s property status and satisfying creditors’ claims (retraining, employment, etc.).
Draw your attention to the fact that the term for implementing the debtor’s debt restructuring plan in insolvency proceedings cannot exceed five years.
In the case of repayment of debts for loans obtained by the debtor to purchase housing, the term for implementing the debtor’s debt restructuring plan cannot exceed 10 years.
Upon the motivated application of the debtor and provided that more than 80% of the creditors’ claims are repaid, the commercial court may extend the term for implementing the debtor’s debt restructuring plan beyond the maximum term.
The debtor’s debt restructuring plan is approved by the commercial court only after the debtor has fully repaid debts related to alimony, compensation for harm caused by mutilation, other health damages, or death of a natural person, as well as the payment of a unified contribution for compulsory state social insurance and other mandatory payments for compulsory state social insurance, if such debts exist.
The debtor’s debt restructuring plan takes effect from the date of its approval by the commercial court and is mandatory for both the debtor and creditors.
Recognition of the debtor as bankrupt and initiation of the debtor’s debt repayment procedure
Article 130 provides that the Commercial Court shall issue a ruling on the recognition of the debtor as bankrupt and the initiation of the debtor’s debt repayment procedure if within 120 days from the date of commencement of insolvency proceedings, no decision has been made by the creditors to approve the debtor’s debt restructuring plan, or a decision has been made to proceed with the debtor’s debt repayment procedure.
The announcement of the recognition of the debtor as bankrupt and the initiation of the debtor’s debt repayment procedure is officially published on the official website of the judicial authority of Ukraine within three days from the date of the relevant court ruling.
Please note that the liquidation assets do not include the housing which is the only place of residence for the debtor’s family (an apartment with a total area not exceeding 60 square meters or a living area not exceeding 13.65 square meters per family member, or a residential building with a total area not exceeding 120 square meters). Such housing is not subject to enforcement, nor is any other property of the debtor that cannot be seized under the law.
Also, the funds that are held by the debtor in pension funds and social insurance funds are not included in the liquidation assets.
Discharge of debts and the debts that are not written off in bankruptcy proceedings
According to Article 134 of the Commercial Code of Ukraine, when the Commercial Court issues a ruling on the completion of the debt repayment procedure of the debtor and the closure of insolvency proceedings, the court makes a decision to discharge the debtor, a natural person, from debts.
Draw attention to the fact that a natural person is not released from further compliance with the creditors’ claims after the completion of judicial procedures in the insolvency proceedings, namely:
1) compensation for harm caused by mutilation, other harm to health, or the death of a natural person;
2) payment of alimony;
3) compliance with other requirements that are inseparably linked to the personality of a natural person.
Negative consequences (restrictions) of bankruptcy proceedings for a natural person.
For five years after a natural person is declared bankrupt, insolvency proceedings cannot be initiated at their request, except in cases where the debtor has fully repaid all debts in the manner provided for by this Code.
For five years after a natural person is declared bankrupt, such person must inform in writing other parties to loan agreements, credit agreements, suretyship agreements, or pledge agreements about their insolvency before entering into contracts.
A natural person cannot be considered to have an impeccable business reputation for three years after being declared bankrupt.
Judicial practice that should be applied in this category of cases.
Since 2019, court decisions/rulings have been made in favor of individuals that have actually helped “hopeless” borrowers restructure their debt.
When addressing such a matter, I consider it appropriate to use the following judicial practice: the Economic Court of Zaporizhzhia Oblast dated 26.10.2020 in case No. 908/3329/19; the Economic Court of Kyiv in case No. Kyiv in case number 910/16249/19 and the Lviv Regional Commercial Court in case number 914/1016/20.
Get a consultation from an expert.:
+38 (067) 124-12-12
+38 (093) 963-12-12
+38 (0432) 611-577
