Bankruptcy of individuals

With the entry into force of the Code of Ukraine on Bankruptcy Procedures in 2019, any person can apply to the commercial court with a statement of their insolvency (bankruptcy) for the purpose of restructuring or writing off monetary debts.

The bankruptcy procedure for individuals makes it advisable to go to court if the total amount of all debts exceeds UAH 150-200 thousand or the monthly increase in the amount of debt due to the accrual of interest, penalties, and fines in the amount of more than UAH 12-15 thousand per month.

Insolvency (bankruptcy) procedures for individuals allow for the repayment (write-off) of all debts of the debtor, in addition to commitments with

• compensation for damage caused by a criminal offense, injury, other injury to health or death of an individual;
• payment of alimony;
• fulfillment of other requirements that are inextricably linked to the identity of an individual.

Unlike enforcement proceedings, within the framework of an insolvency (bankruptcy) case, the only home of the debtor's family that meets the following criteria is not subject to sale:

• housing is not the subject to mortgage;
• an apartment of a total area of no more than 60 square meters or a living area of no more than 13.65 square meters for each member of the debtor's family;
• residential building with a total area of no more than 120 square meters.

If a debtor is declared bankrupt, certain legal consequences are provided for an individual:

1. Within five years after a person is declared bankrupt, insolvency proceedings may not be initiated upon his/her application, except if the debtor has repaid all debts in full in accordance with the procedure provided for by this Code.
2. Within five years after a person is declared bankrupt, such person shall be obliged, before concluding loan agreements, credit agreements, surety agreements or pledge agreements, to notify the other parties to such agreements in writing of the fact of his insolvency.
3. A person cannot be considered to have an impeccable business reputation for three years after being declared bankrupt.

The above consequences do not apply if the debt was repaid through debt restructuring, including if the debts were written off during this restructuring.

How are bankruptcy cases of individuals handled?

Our lawyers will prepare the necessary documents and represent your interests during the bankruptcy proceedings throughout Ukraine.

Our arbitration managers will participate in the case as a debt restructuring manager or property sales manager.

A bankruptcy (insolvency) case of an individual consists of two parts (procedures): debt restructuring and property sale.

After submitting an insolvency application, the commercial court appoints consideration of this application and decides whether to initiate proceedings in the case.

After the initiation of proceedings in the case, the court initiates a debt restructuring procedure and appoints a restructuring manager from among the arbitration managers.

Arbitration managers who are partners of our law firm can participate in any bankruptcy cases and be appointed by the court as restructuring managers and property sales managers.

From the moment of the opening of proceedings in a bankruptcy case of an individual, the debtor is in a special state, and debt collection is controlled by the court and the arbitration manager.

After commencement of insolvecy proceedings:

• The presentation of claims by creditors against the debtor and the satisfaction of such claims may take place only within the framework of insolvency proceedings and in the manner prescribed by the Code of Ukraine on Bankruptcy Procedures.
• Arrests imposed on the debtor's property may be lifted, and the imposition of new arrests on the debtor's property and other restrictions on the debtor's disposal of his property may be applied exclusively by the commercial court within the framework of insolvency proceedings.
• The accrual of fines and other financial sanctions, as well as interest on the debtor's obligations, shall cease.
• The exercise of the debtor's corporate rights and the realization of property rights shall take into account the restrictions established by the Code.
• A moratorium is introduced on satisfying creditors' claims.
• The deadline for the fulfillment of all monetary obligations of the debtor is deemed to have arrived.
• Any alienation and disposal of the debtor's property is carried out exclusively in accordance with the procedure provided for by this Code.

The moratorium on satisfying creditors' claims, imposed by the court, provides for the following restrictions for creditors:

1. The debtor's performance of monetary obligations, including obligations to pay taxes and fees (mandatory payments), the due date for which was reached before the opening of insolvency proceedings, is suspended.
2. Enforcement actions to collect from the debtor under all enforcement documents are suspended, except for enforcement documents for claims that are not subject to write-off within the bankruptcy case.
3. No penalty (fine, penalty) is charged , no other financial sanctions are applied for failure to fulfill or improper fulfillment of obligations.
4. The limitation period for claims against the debtor is suspended.
5. The inflation index is not applied for the entire period of delay in fulfilling the debtor's monetary obligations.

When opening bankruptcy proceedings, the commercial court makes an announcement on the official website of the judiciary. Within 30 days from the date of this announcement, all creditors are required to file all monetary claims against the debtor

Creditors who have not filed monetary claims against the debtor in court do not acquire the status of a participant in the bankruptcy case, and obligations to them may be terminated as a result of the case review.

After considering the creditors' claims, the court recognizes the claims as legitimate and justified, that are included in the register of creditors' claims. Creditors who have timely declared their claims receive the right to a decisive vote in the bankruptcy procedure.

The right to a casting vote allows a creditor to vote at a creditors' meeting. The main task of the creditors' meeting in the restructuring procedure is the development and approval of the debtor's debt restructuring plan.

Simplified - a restructuring plan is adopted to preserve the debtor's property and fulfill obligations without declaring the debtor bankrupt and selling his property.

The restructuring plan may provide for either a postponement of the fulfillment of obligations, or an installment plan for the fulfillment of obligations, or a debt write-off, or the sale of the debtor's property.

Typically, the more property a debtor has, the more creditors' claims must be paid during debt restructuring; the less property, the more debt will be written off (forgiven) in the restructuring procedure.

If the restructuring plan is not approved by the creditors' meeting and the court approves it, the debtor is declared bankrupt, all of his property is sold to repay the debtor's debts, and debts outstanding due to the insufficiency of the debtor's property are considered discharged (written off).

After the implementation of the restructuring plan or the sale of the debtor's property (the sale of which is allowed ) recognized as bankrupt, the bankruptcy case is closed and all the debtor`s debts, including those not declared by creditors, are recognized as repaid. Including debts that were collected by court decisions and for the collection of which enforcement proceedings have been opened, are repaid (written off). The debtor is removed from the debtors` register and all arrests are canceled.

Debtor's good faith in bankruptcy proceedings

Current legislation provides that only a bona fide debtor can expect to restructure or write off their own debts.

To verify the debtor's good faith in the commercial court, the debtor fills out and submits to the court a declaration of income and expenses on a specially approved form for the last three years before submitting an insolvency (bankruptcy) application.

The declaration of income and fees is submitted by the debtor in respect of himself and his family members. According to the general rule in the bankruptcy procedure, family members include:

• Husband/wife, including those with whom the marriage was dissolved less than three years ago.
• Parents and children.
• Persons registered at the same address as the debtor.

The debtor may be declared in bad faith and the bankruptcy proceedings may be closed if, as a result of consideration of the debtor's declarations, it is established that:

1. By the debtor, the declaration of property status contains incomplete and/or inaccurate information about the property, income and expenses of the debtor and his family members, if the debtor, within seven days after receiving the report of the restructuring manager on the results of the inspection of such declaration, did not provide the court with a corrected declaration of property status with complete and reliable information about the property, income and expenses of the debtor and his family members.
2. The property of the debtor's family members was purchased with the debtor's funds and/or registered with another family member for the purpose of evading the debtor from repaying the debt owed to creditors.
3. By a court decision that has entered into legal force and has not been canceled, the debtor was held administratively or criminally liable for unlawful acts relating to insolvency.

In fact, the debtor should not hide property, income, or use his own assets to register property for family members.

During the preparation of your application for the opening of insolvency (bankruptcy) proceedings, our lawyers will help you collect the necessary documents, information, and fill out declarations of income and fees.

Contact us, we love bankruptcy cases and will help you successfully go through all the procedures.