Is bankruptcy of an individual beneficial?

In a citizen’s life, situations may arise when, due to certain circumstances (job loss, lower income, serious illness, etc.), he is unable to fully fulfill his financial obligations. In such cases, one of the solutions to the problem may be the legal recognition of the individual as insolvent. Is bankruptcy profitable and what should a citizen do to obtain such a status? To answer these and other questions, it is necessary to consider in more detail the procedure for this procedure.

Bankruptcy concept

Bankruptcy refers to the recognition in court of a person’s inability to repay monetary obligations to creditors in a timely manner in full. In accordance with the current legislation, both a legal entity and an individual can obtain such a status. What are the differences between the procedures and is bankruptcy beneficial in certain cases?

Legislative regulation

The procedure for declaring citizens bankrupt is established by the Federal Law of the Russian Federation “On Bankruptcy”. Individuals had the opportunity to begin bankruptcy proceedings on 10/01/2015. Prior to this, the legislation provided for such a right only for legal entities - organizations and enterprises. Since the practice of this procedure is small, it is difficult to unequivocally answer the question of whether bankruptcy is profitable and how much its holding is justified for a citizen. As in many situations, it all depends on the specific circumstances.

Conditions for declaring a citizen bankrupt

For citizens whose financial situation does not allow them to pay off debt, bankruptcy may be the best way to overcome the current situation with the least financial loss. However, in order to initiate this procedure, the following circumstances are necessary:

• citizen debt - not less than 500 thousand rubles;
• the debt is not repaid for more than 3 months.

The number of creditors in this situation does not matter - in order to file for bankruptcy, it is necessary that the total amount of debt reach half a million rubles.

The law provides in which cases citizens are required to file for bankruptcy and when they are entitled to do so on a voluntary basis.

Citizen duty

Filing a bankruptcy petition is the responsibility of a citizen if he is indebted to several creditors and, having fulfilled obligations to one of them, cannot satisfy the remaining requirements. He is obliged to declare this to the judicial authority no later than a month after he became aware of the situation. Here the question is already, whether bankruptcy is beneficial, will not stand. A citizen is forced to admit his failure.

Voluntary status

On a voluntary basis, citizens can declare bankruptcy, if there are real reasons, to assume that it is impossible to fulfill their debt obligations on time. In this case, certain conditions must be met: the applicant is insolvent and does not have property, the sale of which will ensure the repayment of debts. Before filing an application, a person can decide for himself whether bankruptcy is beneficial by weighing all the pros and cons.

Order of registration

The bankruptcy procedure takes a long time and includes several stages.

1. Collection of documents.

A person who wants to declare bankruptcy must provide the court with evidence of his insolvency.To do this, prepare documents confirming the financial situation of the citizen, containing data on his property, transactions, income level, etc.

A list of required documents can be found in the bankruptcy law. But it should be borne in mind that each situation is individual and the court may require the provision of additional securities.

2. Preparation and submission of an application.

After all the necessary documentation is collected, you need to draw up a written appeal. It is submitted to the arbitration court at the place of residence of the debtor in person, by mail or by electronic communication.

3. Appointment of a financial manager.

Financial manager - a person authorized to conduct financial affairs for the period of bankruptcy proceedings.

4. Carrying out procedures related to bankruptcy proceedings.

In carrying out bankruptcy proceedings, the court decides on:

• restructuring of a citizen’s debts (i.e., a change in the interest rate and term for paying cash);
• sale of property of the debtor. Valuation and sale of property is carried out by the financial manager. At the same time, only housing, personal belongings, products, awards, prizes and winnings are not subject to sale, in addition, the collection does not apply to a part of the debtor's income equal to the cost of living;
• approval of a settlement agreement, the conclusion of which entails the termination of bankruptcy proceedings.

5. Completion of bankruptcy proceedings.

After all measures are taken to the maximum satisfaction of the requirements of creditors, a citizen is declared bankrupt. So, all his obligations are considered settled and no financial claims can be made against him.

Content of bankruptcy petition

This document should contain information on:

1. Applicant (name, place of registration and residence, telephone and other contacts).
2. The representative of the applicant, if he is involved in the case (name, address, details of the power of attorney).
3. Self-regulatory organization of arbitration managers.
4. Total debt.
5. Lenders (their number and contacts).
6. The composition and value of the property of the debtor.
7. Applicant’s income level.
8. Bank accounts.
9. The applicant’s children and other dependents.
10. Litigation and court decisions taken against a citizen.
11. Circumstances on the basis of which a bankruptcy petition is filed.
12. The documentation attached to the application.

The application shall be submitted to the arbitration court at the place of residence of the debtor in writing in person, by mail or in electronic form. But before this, it is necessary to determine exactly whether bankruptcy is beneficial to the applicant himself, what consequences may be from his actions.

Documents attached to the application

When submitting an application, the following documentation must be attached to it:

1. Documents confirming the sending of copies of the application to creditors.
2. State duty payment receipts.
3. Copies of the power of attorney (upon signing the application by the representative).
4. A document confirming the deposit of money on the court’s deposit to pay remuneration to the financial manager.
5. Documents confirming the debt (loan agreement, receipt) and the applicant's inability to pay it in full.
6. Extracts from the USRIP confirming the status of an individual entrepreneur or his absence (no later than 5 days before the date of going to court).
7. A list of creditors indicating the name, address and amount of debt.
8. Inventory of property (including mortgaged) with the address of its location.
9. Documents on property and results of intellectual activity.
10. Extracts from the register of shareholders - if the applicant is a shareholder (participant) of a legal entity.
11. Information on income and taxes for 3 years.
12. Inquiries from financial institutions on the availability of accounts, deposits and cash balances, statements on operations for 3 years.
13. Copies of SNILS and information on the individual personal account of a citizen.
14. Copies of the resolution of the employment service on recognizing a citizen as unemployed (if any).
15. Copies of the TIN certificate.
16. Copies of marriage or divorce certificates (if any).
17. Copies of the marriage contract (if any).
18. Copies of the agreement on the division of property of spouses (no later than 3 previous years).
19. Copies of the birth certificate of children.
20. Other documents confirming the facts stated in the statement.

It should be borne in mind that in the process of bankruptcy proceedings, the court may also require other documents.

Cost of procedure for citizens

Bankruptcy requires significant financial costs. The costs of this procedure include:

1. State duty - 300 rubles.
2. Cash deposited on the court’s deposit for payment to the financial manager is 25 thousand rubles.
3. Remuneration to the financial manager in the event of the sale of property or debt restructuring - 7% of the value of the property or of the amount paid to the creditor.
4. The publication of information about bankruptcy in the newspaper Kommersant - 10 thousand rubles.
5. Entering information into a single register of bankruptcy information is about 3 thousand rubles.
6. Additional costs (ordering information, extracts, other documentation) - about 2 thousand rubles.

The minimum amount that a citizen who wants to declare bankruptcy will have to spend will amount to 45 thousand rubles. In practice, as a rule, expenses range from 80 to 100 thousand rubles.

Is bankruptcy profitable for a debtor?

In any situation that arises, there are both positive and negative sides. The case under consideration is no exception. Therefore, it is necessary to clearly understand what consequences the bankruptcy procedure entails.

Negative effects of bankruptcy

The studied procedure has unconditional disadvantages:

• quite a high cost: in practice, the debtor pays at least 80 - 120 thousand rubles for the procedure. This is an essential condition that applies not only to citizens, but also to enterprises whose administration decides whether bankruptcy is beneficial to a legal entity;
• the process takes a long time, and the trial has a high level of complexity;
• Until the completion of the procedure, a citizen is not entitled to dispose of his property (to conclude any property transactions), as well as to use funds in accounts in banking institutions;
• the court may decide to ban travel outside the Russian Federation;
• within 5 years from the moment of assignment of the status, repeated submission of a similar application is impossible;
• a citizen is obliged to notify banks of his status when applying for a loan for 5 years from the date it is recognized as such. This fact is significant for many when deciding whether the bankruptcy of IP is beneficial;
• for 3 years he cannot participate in the management of a legal entity.
  

Pros for a citizen

Despite the onset of the above negative consequences, when considering whether bankruptcy is beneficial, one cannot but take into account the fact that the successful implementation of the procedure has positive aspects:

• the accrual of fines, penalties, interest is stopped;
• there is no need to satisfy the requirements of creditors for mandatory payments;
• collection on executive documents is not carried out;
• claims unsatisfied after the sale of the property of the debtor are not subject to execution, i.e. the debt is considered fully repaid.

Participation in shared construction

Separately, it is worth touching on the issue in the situation with developers. Today, for many, the problem of shared construction is quite relevant. Since 2019, some amendments governing this issue come into force. Is the bankruptcy of the developer profitable and how does this affect equity holders?

The process of declaring a company insolvent, just as in the case of individuals, can be initiated voluntarily or by force. There are several reasons:

• initially a “failed” business plan;
• instability of the financial market, which affects the cost of building materials;
• violation of the process of building a house;
• Force Majeure.

As for the question whether the bankruptcy of the developer is beneficial for equity holders, the answer is unequivocal - no. Indeed, according to the law, a citizen, if his future apartment is registered in a mortgage, will be able to receive no more than 75% of the already paid credit funds. Moreover, the obligation to the bank will not go anywhere. In addition, it is not known whether the shareholder will be able to get his living at all. square. Until recently, the new owner who will buy this company is unknown. Also, you can’t predict in advance whether he will continue to build a house in which interest holders have invested, or will he engage in reprofiling?

Summing up the question whether bankruptcy of individuals is beneficial, we can say: when deciding to initiate a procedure, you should carefully analyze the situation, weighing all the pros and cons. In addition, for optimal resolution of the situation, the best way is to seek the help of a qualified lawyer.