Debt write-off for credit / microloans

Credit Debt Write-Off

Credit debt write-off means termination of the borrower’s obligation to repay all or part of the debt on a specific legal basis.

It is important to understand that a bank or financial company is not required to write off a loan simply because:

• the debtor has not paid for a long time;
• several years have passed;
• the debtor has no official income;
• the debtor has no property;
• the default has become significant.

Possible legal mechanisms may include:

• forgiveness of part of the debt by agreement with the creditor;
• restructuring;
• a one-time repayment on agreed terms;
• settlement after assignment of the claim to another creditor;
• challenging unlawful charges;
• special statutory mechanisms;
• personal insolvency proceedings.

Credit debt write-off should be distinguished from the mere cessation of active collection. A debt does not legally disappear simply because the bank has not contacted the borrower for some time.

Can a Bank Forgive Part of the Debt?

Yes. A creditor and debtor may agree to terminate part of the obligation.

The Civil Code of Ukraine provides for termination of an obligation where the creditor releases the debtor from the obligation — in other words, debt forgiveness — provided that this does not violate the rights of third parties.

In practice, the arrangement may look like this:

• the debtor pays an agreed part of the debt;
• the creditor waives the remaining claims;
• the parties confirm in writing that the obligation terminates after payment;
• the creditor provides confirmation that no debt remains.

This option is possible only with the creditor’s consent.

There is no statutory guarantee that a bank must agree to write off 30%, 50%, or 90% of the debt.

When a Creditor May Be Interested in a Settlement

Negotiations may be realistic where:

• the debt has been overdue for a long time;
• the debtor’s financial position has significantly deteriorated;
• full recovery would require substantial costs;
• there are legal risks concerning part of the creditor’s claims;
• the debtor is prepared to make a lump-sum payment;
• the claim has already been assigned to another financial company;
• the creditor considers voluntary settlement more economically beneficial than prolonged litigation.

However, each situation must be assessed individually.

Expiry of the Limitation Period Does Not Mean the Loan Is Written Off

One of the most common misconceptions is that a loan is automatically cancelled after three years.

This is incorrect.

The general limitation period is indeed three years, but:

• it must be calculated correctly;
• its running may be suspended or interrupted;
• acknowledgment of the debt may affect the limitation period;
• the court applies the limitation period only if a party invokes it in the dispute;
• the underlying obligation does not automatically terminate.

The Civil Code expressly provides that expiry of the limitation period is a ground for dismissal of a claim only where a party has invoked it before the court issues its decision. ([zakon.rada.gov.ua](https://zakon.rada.gov.ua/laws/show/435-15))

Is a Loan Written Off If the Debtor Has No Property?

No.

The absence of property or official income may make actual recovery more difficult, but it does not by itself terminate the credit obligation.

It is necessary to separately check:

• whether there is a court judgment;
• whether enforcement proceedings have been opened;
• whether there are bank accounts or income;
• whether property is held in joint ownership;
• whether other assets exist;
• whether there are grounds for personal insolvency proceedings.

Restructuring or Debt Write-Off

These are different settlement mechanisms.

Restructuring means changing the terms of debt repayment.

For example:

• a new payment schedule;
• an extended term;
• a lower monthly payment;
• a deferral;
• a change in the repayment procedure.

Debt forgiveness means that the creditor agrees to waive part or all of the claim.

Negotiations often combine both mechanisms.

How to Properly Agree on Partial Debt Write-Off

You should not transfer the agreed amount based only on a phone conversation.

Before making the payment, it is necessary to obtain a document clearly stating:

• the total amount of debt;
• the amount the debtor must actually pay;
• the payment deadline;
• payment details;
• what will happen to the remaining debt;
• that the creditor will have no further claims after the agreement is performed;
• the procedure for closing the loan.

This is especially important where the settlement involves a significant reduction of the amount originally claimed by the creditor.

Reviewing the Debt Before Negotiations

Before discussing a “discount,” the actual amount of the debt should be established.

The following are reviewed:

• the loan principal;
• interest;
• commissions;
• fines;
• penalties;
• payments already made;
• periods of accrual;
• assignment of the claim.

It may turn out that part of the amount claimed by the creditor should not be “requested for write-off,” but challenged as incorrectly or unjustifiably accrued.

Debt Write-Off After the Loan Has Been Sold to Another Company

A bank or MFO may assign the claim to another creditor.

After that, negotiations are conducted with the new company.

The lawyer reviews:

• the assignment agreement;
• who the current creditor is;
• which specific claim was transferred;
• the amount of debt existing at the time of assignment;
• whether all previous payments were taken into account;
• the terms offered by the new creditor.

A change of creditor does not itself mean an automatic reduction of the debt, but it may open a new negotiation opportunity.

Can an Individual Buy Back Their Own Debt?

Schemes such as “buying your own loan for 10% through a friend” should be approached with great caution.

Not every assignment of a credit claim may be structured in an arbitrary manner, especially where regulated financial relationships are involved.

Before any such transaction, it is necessary to review:

• the creditor’s status;
• the nature of the agreement;
• the legal model of the claim assignment;
• financial regulatory requirements;
• tax consequences;
• the risk that the scheme may be considered unlawful.

Therefore, “assignment to a trusted person” should not be presented as a universal lawful method of writing off a loan.

Tax Consequences of Credit Debt Forgiveness

Debt forgiveness may have tax consequences for an individual.

The specific result depends on:

• the type of loan;
• which part of the debt is forgiven;
• the creditor’s status;
• the legal basis for termination of the obligation;
• the Tax Code provisions in force at the time of the transaction.

Therefore, the outdated formula “18% personal income tax + 1.5% military levy on the entire forgiven amount” should not be applied automatically.

Before signing a debt forgiveness agreement, the tax effect should be calculated separately.

Loan for Property Destroyed or Damaged by War

For certain loans secured by or connected with property that was damaged or destroyed as a result of the war, legislation has provided special settlement mechanisms.

However, there is no universal rule that “any loan relating to destroyed property is automatically written off.”

It is necessary to review:

• which loan was obtained;
• which asset was purchased;
• whether it served as security;
• the extent of damage or fact of destruction;
• the date the debt arose;
• whether the borrower meets the special statutory conditions;
• whether documents confirming damage or destruction are available.

Write-Off of MFO Microloans

The same basic logic applies to MFOs:

• the principal does not disappear automatically;
• the accuracy of charges is reviewed first;
• disputed interest and payments may be challenged;
• negotiations may be conducted with the creditor;
• any agreement to settle for a reduced amount should be documented in writing.

The requirements of the current Law of Ukraine “On Consumer Lending” must also be taken into account. ([zakon.rada.gov.ua](https://zakon.rada.gov.ua/laws/show/1734-19))

Debt Write-Off Through Personal Insolvency

If the problem is not one loan but a systemic inability to service a significant volume of debt, personal insolvency proceedings may be assessed separately.

This is a court procedure under the Bankruptcy Procedures Code of Ukraine.

It may include:

• debt restructuring;
• a repayment plan;
• a debt repayment procedure after the debtor is declared bankrupt;
• release from part of the obligations after completion of the procedure in cases provided by the Code.

This is not “instant cancellation of all loans.”

Before filing, it is necessary to review:

• the total amount of debt;
• the number of creditors;
• income;
• assets;
• mortgages;
• enforcement proceedings;
• types of debt that are not subject to discharge.

What to Do If the Bank Has Already Filed a Lawsuit

Court proceedings do not prevent negotiations.

However, the case must also be defended in parallel.

The lawyer reviews:

• the credit agreement;
• the calculation;
• interest;
• penalties;
• applicable time limits;
• assignment of the claim;
• available evidence.

If there are grounds to apply the limitation period, it must be raised before the court in accordance with the applicable procedure.

Can Debt Be Written Off After a Court Judgment?

A court judgment significantly changes the situation, but does not eliminate the possibility of negotiations with the creditor.

It may still be possible to consider:

• voluntary settlement;
• a settlement agreement where permitted;
• repayment on agreed terms;
• other methods of terminating the obligation;
• personal insolvency.

At the same time, the court judgment is not automatically cancelled by a later agreement — the legal consequences must be properly documented.

What to Do If Enforcement Proceedings Have Already Been Opened

It is necessary to review:

• the enforcement document;
• the outstanding balance;
• arrests;
• the enforcement fee or private enforcement officer’s remuneration;
• property;
• bank accounts;
• the stage of asset realization.

If the parties reach a settlement, the consequences for the enforcement proceedings must be addressed separately.

How a Lawyer Helps Write Off or Reduce Credit Debt

Legal assistance may include:

• an audit of all loans;
• review of calculations;
• analysis of limitation periods;
• verification of the new creditor;
• negotiations;
• preparation of a written settlement proposal;
• review of a debt forgiveness agreement;
• support for a lump-sum settlement;
• court protection;
• analysis of personal insolvency proceedings.

Stages of Work

1. Collection of loan information. We prepare a complete list of creditors and debts.
2. Legal review. We analyze agreements and calculations.
3. Stage assessment. Negotiations, court proceedings, or enforcement proceedings.
4. Scenario assessment. Restructuring, partial forgiveness, challenge, or bankruptcy.
5. Negotiations. We prepare a proposal for the creditor.
6. Documenting the result. We review agreements and confirmation that the debt has been closed.
7. Further protection. If necessary, we support court or enforcement proceedings.

Common Credit Debt Write-Off Situations

Conclusion

Credit debt write-off is not an automatic consequence of default, absence of property, or the passage of three years. A real result may be achieved through an agreement with the creditor, challenging the unlawful part of the debt, special statutory mechanisms, or personal insolvency proceedings. Before making any payment under a “special offer” from a bank or financial company, it is important to obtain written confirmation that the debt will be legally closed after the agreement is performed.

Are you unable to service a loan, or has the creditor offered to close the debt for a lower amount? Submit a request on the Prikhodko & Partners Law Firm website. A lawyer will review the actual amount of debt, assess the possibility of write-off or restructuring, and develop a safe settlement strategy.