“Private bankruptcy — with no trial and payments” — Anna Volynets for the Legal Information Agency
From September 1, citizens are able to get rid of debts in just six months and for free. Individual entrepreneurs also have the right to use the new procedure of out-of-court bankruptcy. However, such a preferential procedure can lead to increase in abuse and deception of bona fide creditors.
Anna Volynets, Project Manager, Prime Advice Law Firm:
The existing procedure for bankruptcy of citizens remains quite complex, expensive and time-consuming for both the court and the participants in the case. In addition, not all debtors can afford the necessary expenses.
Therefore, the new non-judicial mechanism is a long-awaited legislative novelty, which many practitioners have embraced. It allows one to avoid loading the courts with simple cases of bankruptcy of citizens whose debts are insignificant, and there is no liquid property. Due to the absence of fees, the procedure will become more accessible to debtors.
On the other hand, the act does not grant creditors the right to initiate out-of-court bankruptcy. In addition, the procedure is designed only for cases when a citizen does not have property. This should be evidenced by the end of enforcement proceedings. At the same time, bailiffs can make mistakes. Therefore, creditors are delegated the opportunity to send requests to the relevant authorities about the presence of the debtor's assets subject to registration or accounting (real estate, vehicles, securities, etc.).
Creditors also have the right to open transactions for the sale or donation of property made before the citizen filed an application for out-of-court bankruptcy. However, it is unlikely to be possible to do so in six months. It is not yet clear whether the courts can take interim measures in such cases in the form of suspending the completion of out-of-court bankruptcy proceedings.
Abuse, of course, is possible. But the practice will develop ways to deal with it – this is the current trend in the development of bankruptcy practice. In addition, some protective mechanisms are formalized in the act itself. For example, if the debtor did not specify any of their creditors in the application, the debt is retained and not written off after the procedure. Similarly, a citizen who has committed illegal actions in bankruptcy or is caught in malicious evasion of repayment of accounts payable is not exempt from debts.
However, this issue can only be put before the court and resolved in an adversarial process, since the MFC's (Multifunctional Centre) competence to resolve disputes is not designed. Practitioners are already discussing how to initiate legal proceedings on such an issue.