Who Can File for Bankruptcy in Ukraine and When?
Insolvency proceedings for a debtor who is an individual or a sole proprietor can only be initiated upon the debtor’s own application.
The grounds for this are specified in the Code of Ukraine on Bankruptcy Procedures, specifically in Article 115. It states that the right to apply to the commercial court to open insolvency proceedings arises if the repayment of loans or other scheduled payments has ceased for two months, in an amount exceeding 50 percent of the monthly payments for each credit and other obligations.
This right also arises if the debtor has no property that can be seized, and the measures taken by the enforcement officer to find such property, in accordance with the Law, have been unsuccessful.
Furthermore, an application can be submitted to the court even if there are signs of a threat of insolvency. That is, the debtor’s financial and economic situation is characterized by circumstances confirming that the debtor will be unable to meet their monetary obligations on time within the next 12 months or will be unable to make payments on ordinary business obligations.
Stages of Personal Bankruptcy: A Step-by-Step Breakdown of the Procedure
The stages an individual must go through to obtain bankrupt status are as follows: 1. Preliminary consultation; 2. Applying to the court; 3. Opening of insolvency proceedings by the court; 4. Drafting a debt restructuring plan for the debtor; 5. Implementation of the debtor’s debt restructuring plan; 6. Recognition of bankruptcy and debt discharge; 7. Closing the personal insolvency case.
The first stage is one of the most important, as it will determine whether it is worth starting the procedure. Our lawyer will analyze your documents. It is important to provide all of them to give a complete picture of your situation. After a review, the lawyer will assess the possibilities and prospects of the case, warning you about the risks and financial costs. In some cases, if you cannot provide all necessary documents, it may require contacting state authorities or creditors directly.
The second stage involves filing an application with the commercial court, which launches the entire process. Only the debtor can initiate the bankruptcy process, so it is crucial to approach this matter seriously. In the application, you must thoroughly substantiate and prove your insolvency. The list of required documents is contained in Article 116 of the Code of Ukraine on Bankruptcy Procedures. Key documents include an inventory of property with proof of ownership, a detailed list of creditors and debtors, declarations of financial status, and restructuring proposals.
The third stage is the opening of insolvency proceedings. At this stage, the court may impose protective measures, such as a travel ban or a prohibition on concluding contracts. A 120-day moratorium on satisfying creditors’ claims will also be introduced. Importantly, if the court refuses to open proceedings, the next attempt to file is possible only after one year.
The fourth stage involves developing and approving a debt restructuring plan. The bankruptcy trustee develops the plan and presents it at a meeting of creditors, which the trustee also organizes. The creditors vote to approve or reject the plan. This stage concludes with the plan’s approval.
The fifth stage is the implementation of the approved restructuring plan. The implementation period cannot exceed 5 years, except for mortgage obligations. This stage involves both fulfilling obligations and regular reporting. Upon completion, a final report is submitted, and the court closes the proceedings, leaving the debtor free of debt, provided there are no objections from creditors.
The sixth stage is not mandatory and occurs if the restructuring plan is not approved or implemented. In this case, the debtor is declared bankrupt by the court. A property realization manager is appointed to inventory and value the property, form the liquidation estate, and open a separate bank account.
The seventh and final stage is the closing of the bankruptcy case. After the bankruptcy trustee submits a final report, the commercial court issues a ruling to close the proceedings. The debtor is released from their obligations; any debts not covered by the sale of property are discharged and considered settled.
Consequences of Personal Bankruptcy: What Happens After the Procedure
The bankruptcy procedure has several consequences. On the positive side, the debtor can retain certain property that is exempt from seizure and is not included in the liquidation estate.
Negative long-term consequences include a restriction on initiating a new bankruptcy procedure for 5 years. For the subsequent 3 years, the individual will not be considered to have an impeccable business reputation, which can affect their credit history.
Additionally, for 5 years following the procedure, the individual has an obligation to notify all potential new creditors, guarantors, or other interested parties of their prior bankruptcy status.
Which Debts Are Not Discharged in Personal Bankruptcy?
According to Article 125 of the Code of Ukraine on Bankruptcy Procedures, certain debts cannot be restructured or discharged. These include alimony, compensation for harm from a criminal offense, personal injury or death, and mandatory social security contributions. A restructuring plan can only be approved by the court after these specific debts, if they exist, are fully paid.
Potential Downsides of Personal Bankruptcy: What to Consider
Bankruptcy is a method for settling debts, but it has notable disadvantages.
During the procedure, the court may prohibit the debtor from traveling abroad. While not mandatory, this is a judicial power that can be exercised.
The court may also restrict not only the alienation of property but also the use of certain assets. The debtor is prohibited from selling property, creating encumbrances, entering into life maintenance contracts, assigning claims, taking loans, or acting as a guarantor for others.
Beyond repaying debts, the debtor bears other financial burdens, such as the costs for the bankruptcy trustee, notaries, experts, and lawyers. These expenses can be prohibitive for someone already facing insolvency.
Finally, the reputational losses can be significant. As mentioned, an individual cannot file for bankruptcy again for 5 years and must disclose their status to financial partners for 5 years thereafter.
Assistance of a Lawyer in Personal Bankruptcy
Involving a lawyer in a bankruptcy case significantly helps the debtor. A lawyer will analyze your specific situation and develop an optimal plan of action. They will manage all the stages described above, ensuring the outcome protects your interests, not just those of the creditors.
An experienced lawyer will monitor procedural deadlines, handle all actions correctly, and ensure creditors’ demands are lawful. In court, a lawyer can argue to protect certain assets that the law permits a debtor to retain.
Even after the process concludes, legal consultation is valuable, as the individual will face certain restrictions and obligations for the next 3-5 years.
For assistance with these and any other bankruptcy-related matters, the lawyers and attorneys at “Stryzhak & Partners” Law Firm are ready to assist you.