Bankruptcy - how and why Automatic translate

Bankruptcy provides individuals who are unable to pay their debts with the opportunity to gain financial breathing space and start over. It provides a number of significant benefits, despite the serious consequences it may entail. The bankruptcy procedure provides the debtor with protection from the actions of creditors. Once a bankruptcy petition is filed and accepted by the court, creditors are required to cease all collection actions, such as garnishment of property, garnishment of wages, or forced sales of assets.

One of the key benefits of bankruptcy is the ability to write off some or all of your debts. In some cases, bankruptcy allows you to restructure debts, that is, change the terms of their repayment. The court may approve a restructuring plan that includes extending the payment period, lowering interest rates, or reducing the principal amount. The court does not always side with the debtor, but lawyers offering turnkey bankruptcy usually help you successfully complete this procedure. Russian law provides for the protection of certain debtor assets from confiscation. For example, the only housing, necessary household appliances and personal belongings are not subject to collection.

Economic and financial factors

Bankruptcy often results from financial difficulties caused by unemployment, significant medical expenses, or poor financial management. Loss of income, whether it’s job loss, business failure, or reduced wages, is a major cause. Additionally, large medical bills can quickly deplete savings, forcing people to file for bankruptcy protection. Poor financial decisions, including overusing credit cards, taking out unaffordable loans, and lack of financial planning, contribute to these problems.

Psychological factors

The decision to declare bankruptcy is influenced by various psychological factors. Stress and anxiety caused by financial instability can impair decision-making ability, leading a person to consider bankruptcy as the only possible solution. The stigma associated with financial failure can lead to feelings of shame and guilt, further complicating the emotional picture. For some, the decision to file for bankruptcy is driven by the desire to start life with a clean slate, freed from the burden of insurmountable debt. Psychological stability and personal attitude towards debt are also important in the decision-making process.

Legislative framework in Russia

In Russia, the bankruptcy recognition process is regulated by Federal Law No. 127-FZ “On Insolvency (Bankruptcy)”. This law defines the procedures and requirements for individuals to file for bankruptcy, providing a structured path to becoming debt-free.

Bankruptcy criteria

To declare bankruptcy, an individual must owe at least RUB 500,000 and be unable to meet his debt obligations for more than three months. The process can be initiated either by the debtor himself or by creditors. An individual must submit an application to the arbitration court, which will then evaluate the case on its merits.

Bankruptcy procedure

The bankruptcy process includes several stages, starting with the initiation of the case. Once the court accepts the application, it appoints a financial manager to oversee the debtor’s assets and liabilities. The financial manager takes an inventory of the debtor’s assets, determines the total amount of debt and develops a debt repayment plan.

If the court finds the debtor insolvent, it can order the sale of assets to pay off debts to creditors. However, some assets, such as primary housing and basic necessities, are exempt from liquidation under Russian law. The court may also approve a debt restructuring plan that allows the debtor to pay creditors over an extended period of time.

Impact on creditors

Lenders have a key influence on the process. It is the person who is trying to hide from them. Creditors may challenge the debtor’s petition and provide evidence to support their claims. The financial manager must distribute the funds received from the liquidation of assets or the repayment of debts in accordance with a system of priorities established by law. Secured creditors, such as mortgage lenders, generally have priority over unsecured creditors.

Debt write-off

Once the bankruptcy process is successfully completed, the court may write off the remaining debts, giving the debtor the opportunity to start a new financial life. However, not all debts can be written off. Obligations such as alimony, child support and some tax debts must still be paid.

Social and economic consequences

This phenomenon has wider social and economic consequences. It could lead to increased financial instability for creditors and affect the economy as a whole. However, it also provides essential protection for people to rebuild their financial lives and contribute to economic recovery.

Rehabilitation and financial education

After bankruptcy, people can take advantage of financial education programs aimed at increasing financial literacy and developing management skills. These programs aim to prevent future financial hardships by teaching budgeting, saving, and responsible use of credit.

Although this procedure negatively affects your credit history, it is possible to restore your creditworthiness over time. A few years after the trial, subject to compliance with all financial obligations and competent financial management, a person can gradually improve his credit reputation and regain access to credit resources.