On individuals bankruptcy

Today the entering into force of «The Law on bankruptcy of individuals» is widely discussed. Strictly speaking, the issue is the Federal Law №476-FL with intricate name «On Amendments to the Federal Law 'On Insolvency (Bankruptcy)' and Certain Legislative Acts of the Russian Federation to Regulate Rehabilitation Procedures for Individual Debtors" of 29 December 2014.

The original Law must have come into force after July 1, 2015. However, due to unavailability of courts to trial of, as it was suggested, significant quantity of cases on bankruptcy of individuals, its commencement was postponed to October 1, 2015.

Amendments were made to some articles of the Criminal and Town Planning/Urban Planning Codes of the Russian Federation, and to the Federal Laws, concerning insolvency (bankruptcy), and mortgage.

In case of inability to fully satisfy the requirements of one or several bankruptcy creditors on statutory payment, a person is obliged to apply to the court for bankruptcy. The amount of debt must be not less than 500 th RUB. Individual’s bankruptcy cases may be initiated by subjects, bankruptcy creditors and other authorized bodies.

Unlike bankruptcy cases of legal entities and individual entrepreneurs, the individual’s bankruptcy cases will be considered by general jurisdiction courts. By initiated case the court obligatorily appoints a finance manager, who is charged with obligations similar to court-appointed manager. According to the results of case proceeding, the trial courts may take decisions on restructuring of debt or realization of property or settlement agreement. Court has right to make determination on temporary restriction of exit from the Russian Federation, ban to open bank accounts and manage commercial organizations. Real estate, jewelry and luxury items at the cost of more than 100 th RUB must be sold in a public sale. However, under the court decision the debtor cannot be deprived of a sole real estate. Moreover, the debtor can keep daily used items amounting to 30 th RUB.

After closing the bankruptcy case the debtor has no right to undertake credit or loan obligations during 5 years without the reference to a bankruptcy fact.

By amendments it was established:

• criteria of individual’s insolvency;
• peculiarities of consideration the validity for bankruptcy petition;
• project preparation and presentation on restructuring of the debt plan, its content and procedure for implementing, including cases of application for new credit or purchase of goods by instalment;
• peculiarities of determination the proceedings оn individual’s bankruptcy due to the settlement agreement or in case of the debtor`s death.

Following the experts, the provisions of the Law may apply to about half a million debtors. The mortgage credit debtors in foreign currency may be mostly interested in bankruptcy procedure when the amount of debt exceeds the market price of realty.

According to the financial analysts, the amendments will not have much impact on banking activity, and debt collection loses sense after the court receives the bankruptcy petition, when the claimant has to get into the bankruptcy proceeding.

However, the integration of the individuals bankruptcy proceeding may face difficulties on the first stage connected with restructuring of courts, lack of professionals – financial managers.

After some time, as far as all procedures get fixed, the Law let ease tension in society because of increasing volume of «lost debts» and broaden the possibilities of debt collection.

Reportedly, for the first few days of forcing the Law, first petitions on individuals’ bankruptcy are filed in courts. It should not be expected that decisions of general jurisdiction courts on individuals’ bankruptcy cases will be published by operation of the Law on personal data.