Deputy Managing Partner Anatoliy Perepelchenko on bankruptcy of an individual
On April 18, 2019, the institution of bankruptcy of individuals will be introduced in Ukraine – the Code of Ukraine on Bankruptcy Procedures will enter into force. The institute will regulate court and pre-trial bankruptcy proceedings. The new law offers a mechanism to protect the individual debtor from unscrupulous creditors. From now on, having a debt, an individual is able to agree on deferral or write-off of debt, change the essential terms of their credit obligations, get rid of tax arrears for the previous three years.
The debtor will have the right to apply to the court to initiate proceedings in the case of his insolvency. The court may grant such a right to the debtor if the following grounds are available:
1. The amount of overdue obligations to the creditor (creditors) is not less than 30 minimum wages;
2. The debtor has stopped repaying loans or making other scheduled payments in excess of 50% of the monthly payments on each of the obligations within two months;
3. The court issued a ruling in the enforcement proceedings on the lack of property of an individual, which can be levied.
Together with the application, the debtor submits documents confirming the existence of the debt, the availability of property, accounts, debt repayment plan, information on income. The court evaluates the documents provided by the debtor, opens insolvency proceedings and proposes the application of the debt restructuring procedure. The participation of the arbitration trustee, who provides professional assistance to the debtor in the development of the procedure and plan for debt restructuring within 120 days, is mandatory in the case. From then on, a moratorium on creditors’ claims takes effect.
The restructuring plan is calculated in order to restore the debtor’s solvency, for example, the debtor’s employment or retraining. Such a plan could write off debt, and the restructuring could not take more than five years. But, for some debtors, the procedure for restoring solvency can be up to 15 years – on foreign currency loans, which are secured by an apartment or house. The restructuring plan must be approved by the creditors.
The court may close the case if, for example, the debtor provides inaccurate information about his property or income. In addition, the court may seize property or accounts, restrict travel abroad.
In case the court refuses to approve the debt restructuring plan or in case a natural person violates the agreements reached, the creditor has the right to initiate the introduction of a debt repayment procedure in court. Under such conditions, creditors’ claims that should have been written off are restored in full. Within 120 days, the debtor is declared bankrupt and the debt repayment procedure is initiated, during which the debtor’s property will be sold and the creditors’ claims will be satisfied in accordance with the established order.
The debtor’s property is everything that is in his possession, as well as what will be received by him in the future after his bankruptcy and until the completion of the debt repayment procedure. Exceptions are property that is necessary to meet the urgent needs of the debtor or members of his family and property worth no more than 10 times the minimum wage. The law provides for the sale of bankrupt property through the electronic public procurement system ProZorro.
After the completion of the debt repayment procedure and the closure of the proceedings, the court decides to release the debtor from debts, which are now considered repaid. No creditor may initiate insolvency proceedings against that individual within five years of such a decision. And this person, in turn, must notify the party during the conclusion of the loan agreement, loan, pledge, surety, etc., of the fact of its bankruptcy.
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