On the loan restructuring and bankruptcy procedures of individuals

At the end of 2020 – the beginning of the new year, legislators showed enviable activity aimed at strengthening the responsibility for the financial obligations of Ukrainian citizens. Thus, Law No. 891, adopted in the fall, concerns microcredits came into force on January 1 and simplifies consumer lending for a loan amount of up to UAH 6,000. For loans exceeding this amount, a number of rules apply, the main of which is to inform the consumer of financial services about all the essential terms of the agreement, including all sorts of nuances, in the form of providing a Consumer Loan Passport. The law limits the lender to the amount of penalties, increases barriers to the possibility of borrowers receiving an unlimited number of quick and small funds without the intention of returning them.

Interesting innovations related to the obligatory consent of the consumer to transfer personal information by the lender to the Credit Bureau.

The long-standing law “On the organization of the formation and circulation of credit histories” has strengthened the opportunities for financial companies suffering from defaults. Now they have the right to refuse to issue a loan if the potential borrower does not agree to transfer his data to the Credit Bureau.

The market has shown itself at the level of lobbying for changes in specialized legislation for a reason: the collapse of the hryvnia since 2008, massive loan defaults, the withdrawal of bankrupt banks from the financial sector led to a huge number of unpromising liabilities portfolios. Unpromising – from the point of view of limitation, legal processing, lack of court decisions establishing the amount of undisputed debts, mortgage and other collateral. The mortgage moratorium and the actual conditions of the current situation of the borrowers were also negatively imposed on the chances of collection of borrowed funds. Unfortunately, the majority of fellow citizens and national companies did not become richer during this period. In Ukraine, new instruments have appeared that allow insolvent payers to nullify debt obligations. Or to delay the vulgar, in their opinion, the moment of calculation for a sufficiently long period. All this led the industry to a dead end, giving rise to legal uncertainty and complete disregard for the principle of inevitability of punishment, if I may say so in relation to the reciprocal obligation under the contract. Meanwhile, in the last two years, Dutch and other auctions for the wholesale of financial claims have taken place, which have allowed financial companies to buy back the liability portfolios at a discount of over 99%. Last year was marked by an active increase in the number of such companies and the beginning of a stormy and very specific activity for the return of borrowed funds.

All this, as well as the draft law adopted on January 27 in the first reading, which provides for the specifics of settlement of debt obligations by collection companies, make debtors today once again reconsider their approaches to issues of both existing and prospective debts.

So, what is important for a financially insolvent borrower to know?

There are a number of methods to settle debt recovery.

One of them is debt restructuring with the holder of creditor rights.

The lender’s compliance is usually affected by the debtor’s poor credit history. Everything matters:

– the debtor does not have a permanent source of income,

– long delay in payments,

– early attempts at restructuring – amendments to the current loan agreement,

– participation in promotions announced by banks to reduce / write off debt obligations, further non-fulfillment of new conditions,

– lack of guarantors, loan guarantors,

– lack of mortgages and other collateral,

– a mortgage subject to a moratorium,

– litigation on secured portfolios with a large number of parties and different subjects of claims that prevent the creditor from enforcing the court decision.

In short, the worse the debtor’s history, the more likely the creditor will agree to further concessions.

Since 2019, Ukrainian law has also provided an opportunity to “nullify” financial obligations through the bankruptcy procedure of an individual. If earlier bankruptcy could only concern companies and entrepreneurs, then the new code provided such a right to citizens. Figures testify to the relevance of this method: according to the data of the Kyiv regional department of the Ministry of Justice, at the end of last year, 34 people in Kyiv used this right.

The peculiarities of the bankruptcy procedure of an individual are as follows.

Firstly, only the debtor himself can initiate the procedure; creditors do not have such a right.

The amount of overdue debt should be more than 180 thousand hryvnia, and the delay in debt payments should be persistent – at least two months, and payments for each obligation should not reach half of the due amounts in this period. The presence of a resolution within the framework of enforcement proceedings on the absence of property from the debtor and the impossibility of executing the court decision is mandatory.

If the debtor sees no other way for himself as bankruptcy due to the current circumstances, he must also consider such factors as:

– the possibility of challenging by creditors of agreements on the alienation of his property, which took place in the recent past, which will affect not only his interests, but the interests of third parties participating in past transactions;

– the bullet in his reputation as a financially wealthy person. The law indicates the stripping of the title of “impeccable reputation” for a period of three years, but the information in the Bureau of Credit Histories does not provide for “cleanup”, unless it was distorted. By the way, the debtor is legally granted the right to receive information about himself / herself from such a Bureau, once a year, free of charge. This can be in the form of a Credit Report and information about requests to the register – who and when entered, and corrected, and updated, and requested information about a person. False data can be challenged and corrected by the debtor, there is a special procedure;

– there are restrictions on the restructuring and writing off of social debts (pensions, alimony, tort obligations), as well as loans received for recreation, entertainment, and the purchase of luxury goods. Gambling debt cannot be written off either).

Thus, if the creditors do not approve the restructuring plan within 120 days, the court decides on the bankruptcy of the person and the repayment of his debts.

In fact, a bankrupt will not be able to get a loan in the near future, get a job where the requirements of “impeccable business reputation” are imposed, however, all debts, with the described exception, will be paid off, and even money will remain in the pension (social) account with an apartment. if it is the only place of residence of the debtor and the area is not exceeds 60 square meters, residential building -120.

Tetiana Kuzmych

Lawyer, partner K.A.C. Group

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