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The law on out-of-court bankruptcy of citizens went into effect

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The law on out-of-court bankruptcy of citizens went into effect

by | Feb 4, 2021 | Blog

February 2, 2021

By: Grigory Galkin

The amendments[1] to the Bankruptcy Law entered into force on September 1, 2020, allowing the out-of-court bankruptcy of citizens.

The amendments allow citizens who do not have property to pay off creditors and whose debt is relatively small, to go through bankruptcy proceedings free of charge in a simplified manner.

In general, the amendments do not affect the interests of creditors with significant claims:

  • the out-of-court bankruptcy procedure is not applicable to claims exceeding 500,000 Russian Rubles;
  • the creditors, whose claims were not indicated in the citizen’s application for out-of-court bankruptcy, have the right to apply to court requesting to declare the citizen bankrupt through the general (judicial) procedure and to cancel the out-of-court bankruptcy procedure;
  • the citizen shall not be released from debts to creditors, whose claims were not indicated by him in the application for out-of-court bankruptcy.

Summary of out-of-court bankruptcy proceedings

A citizen is entitled to apply for out-of-court bankruptcy if the total amount of his obligations is between 50,000 and 500,000 Russian Rubles and he has no property to foreclose on.

The application is submitted at the place of residence or place of stay of the debtor citizen to the multifunctional center for the provision of state and municipal services (hereinafter – MFC). The citizen shall attach a list of all known creditors to the application. There is no fee for processing of the application.

Within 3 business days after the receipt of the application, the MFC either includes information on the initiation of an out-of-court bankruptcy procedure of a citizen in the Unified Federal Register of Bankruptcy Data (hereinafter referred to as UFRBD) or returns the submitted application to the citizen indicating the reason for the return.

Consequences of the out-of-court bankruptcy of a citizen

The following consequences shall apply from the date of the UFRBD entry indicating initiation of the out-of-court bankruptcy procedure of a citizen:

  • a moratorium shall be introduced on the satisfaction of creditors’ claims for monetary obligations, on the payment of mandatory payments;
  • the monetary liabilities that arose before the introduction of the moratorium shall be deemed due and payable;
  • the accrual of the forfeits (fines, penalties) and existing financial sanctions, as well as interest on the obligations of a citizen, shall cease;
  • the enforcement under the writs of execution for property claims against the citizen shall be suspended.

These consequences do not apply to the claims that were not indicated by the citizen when filing an application, as well as to certain types of claims specified in the Bankruptcy Law (for compensation of harm caused to life or health, for reclamation of property from adverse possession, for payment of salary and severance pay, for moral damages, for the recovery of alimony payments, etc.).

Out-of-court bankruptcy is introduced for 6 months.

Termination of out-of-court bankruptcy, the rights of creditors

During the term of the out-of-court bankruptcy the creditors who were not indicated by the citizen in the application, as well as the creditors indicated in the list, if their claims were not indicated in full, as well as in the event the citizen’s property is discovered or if the court satisfies the creditor’s claim to invalidate the debtor’s transaction, have the right to apply to the Arbitrazh court with an application to declare the citizen bankrupt.

If the court satisfies the application and orders to deem the application to declare the citizen bankrupt to be reasonable, the out-of-court bankruptcy procedure is terminated and the procedure for restructuring the citizen’s debts is introduced.

Release of the citizen from obligations upon the completion of out-of-court bankruptcy

After 6 months from the date of the UFRBD entry indicating initiation of the out-of-court bankruptcy procedure of the citizen, the out-of-court bankruptcy procedure is complete, and such citizen is released from further satisfaction of the creditors’ claims.

This rule does not apply to creditors’ claims that were not indicated in the citizen’s application. If the claims were not indicated in full, then the citizen is released only from that part of the claims that he indicated in the application.

This rule also does not apply to the certain types of claims specified in the Bankruptcy Law (on holding a citizen subsidiary liable as a controlling person, etc.).

[1] Introduced by Federal Law dated 31.07.2020 N 289-ФЗ.