Bankruptcy of an individual entrepreneur

The number of loans issued in Ukraine increases every year, including those provided by microfinance organizations. As the loans issued grow, so does the total amount of non-repayable debts. This especially applies to individual entrepreneurs. In some cases, bankruptcy proceedings may be used to resolve this issue.

Bankruptcy of a natural person-enterprise is a recognition by the courts of the debtor’s insolvency. The procedure involves partial or full write-off of debts. Pursuant to Article 53 of the Economic Code of Ukraine, an individual entrepreneur can initiate bankruptcy proceedings on his own. The application for bankruptcy is submitted to the commercial court at the place of registration or location of the debtor.

What stages does the bankruptcy declaration procedure consist of?

If you are registered as a sole proprietor, you obviously have ambitions for a prosperous and successful life, i.e., for obtaining stable profits. However, almost all entrepreneurs face situations when certain factors (significant fines, changes in the hryvnia exchange rate, etc.) can affect their solvency, up to declaring bankruptcy.

The optimal term of the bankruptcy procedure is from 6 to 8 months. This period can be extended as a result of appeals of court decisions by creditors, or in cases, for example, when it comes to a significant amount of property that is subject to sale. If the debtor has no property, and the court decision is not appealed, the term of the bankruptcy procedure is up to 5 months.

Thus, declaring bankruptcy is the only possible legal way to clear and protect against debts through the liquidation procedure.

The standard bankruptcy procedure for a natural person-enterprise consists of the following components:

• Analysis of the property and financial condition of the debtor.
• Analysis of obligations related to entrepreneurial activity.
• Registration of termination of activity of a natural person-entrepreneur.
• Deregistration in institutions and state bodies, where possible before bankruptcy is recognized.
• Filing an application for recognition of bankruptcy and drawing up a debt repayment plan.
• Completion of the liquidation procedure.
• Exclusion of a natural person-enterprise from the Unified State Register.

Debt repayment and restructuring

The bankruptcy procedure of an individual consists of two stages:

1. Debt restructuring
2. Repayment of debts

Debt restructuring

This is one of the court procedures that allows you to restore the debtor’s solvency by changing the order and method of fulfilling his obligations in accordance with the debt restructuring plan.

The duration of this stage is from 3 to 12 months. The course of debt restructuring depends on the debtor, the court and the mood of creditors. The final stage is the approval of the restructuring plan and the transition to debt repayment.

Repayment of the debtor’s debts

This is the second stage, which allows you to satisfy the demands of creditors by selling the property of an individual. The property of the debtor is treated as a liquidation mass. The exception is the debtor’s single dwelling (apartment up to 60 sq.m., private house up to 120 sq.m.).

Important: freed from all debts, an individual entrepreneur should not forget that he bears, first of all, reputational losses. After a natural person is recognized as bankrupt, proceedings cannot be opened on his application for insolvency for 5 years. Before entering into credit agreements, loan agreements, pledges or guarantees, a person must notify the other parties of such agreements in writing about his insolvency. In addition, within 3 years after a natural person is recognized as bankrupt, he cannot be considered a natural person with an impeccable business reputation.

Thus, if the debtor has good grounds for bankruptcy, it is necessary to collect a package of necessary documents and prepare to submit them with an application to the court. Filing an application is the basis for state authorities to start an examination of the bankruptcy of an individual. It is quite difficult to draw up such a document without special knowledge. It is better to entrust this matter to an experienced lawyer.

The specialists of “PRIKHODKO & PARTNERS” will help you to correctly prepare all the documents and statements required for filing the bankruptcy of a natural person-entrepreneur. Sign up for a consultation!