Lola Bakaeva, a legal adviser of the ELCO Profi Law Office, prepared a detailed material on the risks and negative consequences of the bankruptcy procedure for individuals.  Is it safe and can bankruptcy be called a real way to get rid of the debts?

Bankruptcy of indIviduals is advertised today literally at every corner.  However, no matter how attractive the idea of   getting rid of all the debts is, it should be understood that bankruptcy is not an easy procedure.  On the one hand, it pursues the goal of relieving a conscientious person from the debt burden, but on the other hand, it requires significant expenses and creates the risk of losing all property without the desired cancellation of debts.  Lets consider negative aspects of bankruptcy of individuals.

Bankruptcy proceedings cost

The debtor bears the costs of paying for the services of a bankruptcy trustee, publications, postage, services of attracted specialists (for example, lawyers).  In this case, the bankruptcy case of a citizen may be terminated by the arbitration court at any stage of the judicial process if the debtor does not have sufficient funds to reimburse the legal costs for carrying out the procedures included in the bankruptcy case.

There is a free of charge out-of-court bankruptcy procedure (such bankruptcy is formalized through the MFC), but it is possible only under the combination of the following conditions:

  • if all the enforcement proceedings have been completed in relation to the debtor due to the fact that he or she does not have property on which a claim can be levied, and the writ of execution has been returned to the recoverer;
  • if no other enforcement proceedings were initiated after the return of the writ of execution; 
  • if the amount of the debt is no more than 500,000 rubles.
In the absence of the specified conditions, the bankruptcy procedure of an individual debtor can be implemented only in court.

Restrictions in bankruptcy

In out-of-court bankruptcy: from the date the information is entered into the register, the debtor is deprived of the right to conclude loan agreements, credit agreements, surety agreements, as well as other transactions of a security nature.
In case of judicial bankruptcy: certain restrictions are imposed on the citizen, depending on the procedure used in the bankruptcy case.
For example, since the introduction of the debt restructuring procedure, a citizen loses the opportunity to make transactions without the prior consent of his bankruptcy trustee, expressed in writing, if the transaction amount is 50,000 rubles or more.

The debtor's rights are limited even more after the introduction of the property sale procedure.  The following restrictions are introduced:

  • the debtor transfers all his bank cards to the bankruptcy trustee ;
  • the court has the right to temporarily prohibit the debtor from leaving the territory of the Russian Federation;
  • the debtor is prohibited from making any transactions with the property constituting the bankruptcy estate without the participation of a bankruptcy trustee;
  • the transfer of property by third parties for the purpose of fulfilling obligations to the debtor, including the payment of funds, is carried out to the address of a bankruptcy trustee;
  • the debtor does not have the right to personally open bank accounts and deposits and receive funds.

Challenging transactions in bankruptcy

In order to protect the interests of creditors, a legal mechanism such as challenging transactions made by the debtor is used.

A transaction that meets the following criteria may be declared invalid:

  • the transaction that was completed within the last three years (before the bankruptcy petition was accepted by the court);
  • the debtor already showed the signs of insolvency at the time of the transaction - in other words, he or she was not in the best financial conditions;
  • the transaction was made with interested parties (for example, with non-blooded or distant relatives) or not on the market terms.

Risk of negative consequences of bankruptcy

Very often debtors rely on a complete cancellation of their debts, but not all debts are written off after the end of the bankruptcy procedure.  For example, non-write-off debts include child support obligations.  Moreover, if in the course of procedure the signs of deliberate bankruptcy are established, the court may not apply the consequences in the form of debt cancellation.

For a person who is declared bankrupt, the following consequences are envisaged:

A citizen will be deprived of the right to hold leadership positions in any organization for 3 years;
the debtor is obliged to inform potential creditors about the bankruptcy procedure passed within 5 years;
it will be possible to re-initiate the bankruptcy procedure only after 5 years, and out of court procedure - after 10 years.

Bankruptcy advice

Before filing an application for declaring a citizen bankrupt, it is recommended to:
  • determine the range of property that will be sold in order to fulfill the debtor's obligations to creditors;
  • consider the prospect of excluding 1/2 of the share in the right to assets that were acquired by the debtor during the marriage from the property mass;
  • assess the possibility of the debtor's preservation of the most valuable property, which, as a rule, is the only housing.

To perform the indicated actions, to conduct a legal audit of the debtor's transactions for the presence of grounds for invalidating them, to predict the course of bankruptcy procedures are the tasks for a professional that the debtor cannot cope with on his own without having legal education and appropriate practice.  For this reason, the key recommendation is to involve a lawyer, which does not exclude personal participation in court hearings (in the case of judicial bankruptcy) and control over the course of the entire bankruptcy procedure.