According to banks, there are 50 billion hryvnias of problem indebtedness of individuals in Ukraine. Many people are in such financial hardships, which they cannot overcome on their own. There are many reasons why a person might have lost his/her fortune: financial crises of 2008 and 2014, the devaluation of hryvnia, an illness, the loss of working capacity, even a divorce. Today, the people with debts practically have no chances for a new life; they either have to work like slaves or run away abroad.
According to the deputy of Samopomich, Ruslan Sydorovych, the problem is that we do not have such a legislative mechanism as the judicial procedure for recognizing insolvency, that is, the bankruptcy of individuals. This problem can be solved by the bill 8060. Ruslan Sydorovych is one of its authors. He says that it was created, because bona fide debtors have the right to a new decent start. The state should guarantee it to them.
This bill offers two options for individuals who declare themselves bankrupt. First is to offer a financial restructuring plan to creditors. That is, with the existing assets, draft a realistic business plan and determine the time needed to restore solvency. The second option is when the individuals get rid of their assets, but also get rid of their debts.
Importantly, the law guarantees an exclusive right of debtors themselves to initiate a natural person bankruptcy case. The creditors cannot do this. Sydorovych notes, “A person goes bankrupt, but with zero debts. This person can apply for a job again and start a new business. Responsibility in the form of negative consequences lies only in the fact that the person is entered into the relevant register of debtors and when concluding agreements, they must indicate that they were subject to bankruptcy”. This is the most loyal approach among the existing mechanisms in the legal systems of the world.
In addition to this, the bill 8060 also concerns the issue of currency loan debtors. These are the people who had taken out loans for the purchase of housing in dollars and euros at the rate of 5.05 before 2008. It is clear that now the repayment of these loans is almost impossible. According to this draft law, individuals can be restructuring their debts during 10 or 15 years under a preferential housing program. Once again, this can be done only at the initiative of the very debtors. That is, banks will not be able to initiate such a procedure. The maintenance of this debt will be in fact the amount of the rent. People keep their housing, and banks will get at least some money, albeit less than in accordance with the terms of the loan agreement.
Ruslan Sydorovych thinks there should be almost no abuses of the new law. He says they are minimized as much as possible. First of all, a person enters the register of debtors and in the next 5 years cannot re-initiate a bankruptcy case. If we are talking about officials, then the entry in this register significantly limits their career growth. Secondly, the eternal desire of Ukrainian officials to register their property to their mother-father-sister is also taken into account.
“When a person says that he/she is poor and cannot service debts, yet his/her relatives own a lot of property, then the bankruptcy process cannot be applied to such a person. This mechanism should be a safeguard.”
It will also be impossible to restructure debts for alimony, damage due to the commission of a crime.
Despite the risks, the very banks perceive this law as progressive and positive. It is beneficial to financial institutions as well – the law allows writing off the so-called toxic assets. Because the ownership of bad loans worsens the balance of payments of the bank.
Ruslan Sydorovych believes that the most important thing is that, “This law ensures a social balance. Debtors get the opportunity to get out of their debts, while creditors get the opportunity to get rid of toxic assets.”
However, the lawmaker notes that it is not enough to only introduce this mechanism, there must also be related things that will ensure its effectiveness. Even if the draft law is adopted in the session hall, we will still need time to pass changes to the Tax Code. For example, not to consider the restructured debt a profit, the way it is considered now. “What is the point of restoring solvency then – if a person does not have money to pay a million hryvnias of debt, then he/she will not have 180 thousand to pay for taxes,” said Sydorovych.
“We are talking about a year during which we should not sit idle and wait. The task of the parliament and the government is to provide at the level of by-laws for the mechanisms that will stimulate the restoration of solvency. The main task of the state is not to recognize an individual as bankrupt, but to create incentives that will help such a person to start over again and revive financially. Because these people are active members of social society who can generate taxes, who can form a powerful layer of the middle class, without which the existence of a democratic society is impossible.”