Bankruptcy of individuals in Russia:
legal mechanisms for exemption from debt obligations Automatic translate

Bankruptcy of an individual is a legally established procedure aimed at resolving the financial insolvency of a citizen in order to fairly satisfy the demands of creditors and subsequently release the debtor from unbearable debt obligations. This institution is regulated by Federal Law No. 127-FZ of October 26, 2002 "On Insolvency (Bankruptcy)", Chapter X of which was put into effect on October 1, 2015.

The bankruptcy procedure provides citizens with the opportunity to legally resolve the problem of critical indebtedness, when the total amount of debt exceeds the debtor’s ability to repay it. At the same time, the procedure can be applied to various types of debt obligations: bank loans, microloans, tax arrears, fines, utility payments, debts to individuals under receipts and loan agreements.

Statistical data on the development of the institute

During the period of the bankruptcy legislation for individuals from October 2015 to the end of 2024, more than 1.53 million citizens received the status of insolvent. In 2024, this figure reached record levels - 431.9 thousand citizens were declared bankrupt through judicial proceedings, which is 23.6% higher than the figures for 2023.

Significant growth is also observed in the area of ​​extrajudicial bankruptcy: in 2024, 55,652 simplified bankruptcy procedures were initiated through the MFC, which is 3.5 times higher than in 2023. In the overwhelming majority of cases (96.7%), citizens initiate their own bankruptcy on their own.

Legal grounds for applying bankruptcy proceedings

Criteria for financial insolvency

The legislation establishes objective criteria under which a citizen can be declared bankrupt. The basic conditions are:

Amount of debt: the total claims of creditors must be at least 500 thousand rubles. However, the law does not establish a maximum debt limit.

Period of delay: failure to fulfill monetary obligations must continue for at least three months from the date of their fulfillment.

Insolvency: a citizen must lose the ability to fully satisfy the demands of creditors for monetary obligations.

It is important to note that if the specified criteria are exceeded, the citizen has not only the right, but also the obligation to apply to the arbitration court with an application for recognition of bankruptcy within 30 working days. Failure to fulfill this obligation entails administrative liability in the form of a fine of up to 10 thousand rubles.

Subjects of initiation of the procedure

The right to apply to an arbitration court with a statement on recognizing a citizen as bankrupt is enjoyed by:

• the citizen-debtor himself (including with the help of a specialized legal company, see : https://bankrotstvo.info/company-rating/ )
• bankruptcy creditors (subject to established criteria)
• authorized bodies (in particular, the Federal Tax Service)
• employees or former employees of the debtor for claims for payment of wages and severance pay

Forms of bankruptcy procedure for individuals

Russian legislation provides for two main formats for conducting bankruptcy procedures for individuals: judicial and extrajudicial procedures.

Judicial bankruptcy

Judicial bankruptcy is used in cases where the amount of debt exceeds 500 thousand rubles or when a citizen does not meet the criteria for a simplified procedure. This format includes several potential procedures:

Debt restructuring is a rehabilitation procedure aimed at restoring the debtor’s solvency and repaying the debt in accordance with the approved plan. The procedure can last up to three years and involves a phased repayment of debts without the accrual of penalties.

To introduce restructuring, a number of conditions must be met:

• the debtor has a stable official income
• no conviction for economic crimes
• absence of administrative penalties for economic offenses
• no bankruptcy proceedings in the last five years
• no restructuring for the last eight years

Realization of property is a procedure aimed at selling the debtor’s property in order to satisfy creditors’ claims. The term of this procedure is six months with the possibility of extension by the court. Property that cannot be subject to foreclosure in accordance with Article 446 of the Civil Procedure Code of the Russian Federation is excluded from the sale.

A settlement agreement is a procedure that allows a compromise to be reached between the debtor and creditors at any stage of bankruptcy.

Out-of-court bankruptcy

A simplified bankruptcy procedure through the MFC was introduced on September 1, 2020 and significantly expanded in November 2023. This procedure is free and does not require the participation of a financial manager.

Criteria for the application of extrajudicial bankruptcy:

Main category of citizens:

• the amount of debt is from 25 thousand to 1 million rubles
• enforcement proceedings were terminated due to the absence of the debtor’s property
• absence of new enforcement proceedings after the return of documents

Special categories of citizens:

• pensioners whose main income is their pension
• recipients of child care benefits
• persons in respect of whom the writ of execution was issued more than seven years ago

The role of the financial manager in bankruptcy proceedings

The financial manager is a key figure in judicial bankruptcy, acting as an intermediary between the debtor, creditors and the court. This specialist must have a higher legal or economic education, be a member of a self-regulatory organization of arbitration managers and have liability insurance for at least 10 million rubles.

The main responsibilities of the financial manager:

• identification and ensuring the safety of the debtor’s property
• conducting a financial analysis of a citizen’s condition
• identifying signs of deliberate and fictitious bankruptcy
• maintaining a register of creditors and notifying participants in the procedure
• analysis of the debt restructuring plan and control over its implementation
• publication of bankruptcy information in the Unified Federal Register

Rights of the financial manager:

• filing claims for invalidation of suspicious transactions
• statement of objections to creditors’ claims
• obtaining information about the state of a citizen’s property and accounts
• convening of meetings of creditors
• petitions for interim measures

The financial manager’s remuneration is 25 thousand rubles for each procedure plus 7% of the funds paid to creditors during debt restructuring.

Formation and implementation of the bankruptcy estate

Bankruptcy estate is the totality of the debtor’s property subject to sale to satisfy creditors’ claims. It includes all property owned by the citizen on the date of recognition as bankrupt, as well as that identified during the procedure.

Composition of the bankruptcy estate:

Included in the bankruptcy estate:

• funds in accounts and cash
• real estate (except for the only home)
• vehicles
• luxury and expensive items
• intangible assets and claims
• accounts receivable

The following is excluded from the bankruptcy estate:

• the debtor’s only home (if not pledged)
• essentials and home furnishings
• professional tools worth up to 15 thousand rubles
• social payments and benefits
• alimony for minor children

The order of satisfaction of creditors’ claims:

1. Claims for compensation for harm to life and health, alimony
2. Settlements with secured creditors (80% of the value of the collateral)
3. Legal costs and remuneration of the financial manager
4. Other claims of creditors in calendar order

Economic aspects of bankruptcy proceedings

Cost of bankruptcy proceedings

The total cost of bankruptcy proceedings through the court is formed from mandatory expenses and payment for legal services:

Mandatory expenses:

• state duty : 300 rubles
• deposit for financial manager’s remuneration : 25 thousand rubles for each procedure
• publications in printed media : 13-15 thousand rubles
• postage costs : up to 5 thousand rubles

Legal support: from 50 thousand rubles in the regions to 150-200 thousand rubles in Moscow.

The total cost of the bankruptcy procedure ranges from 95 thousand to 200 thousand rubles, depending on the complexity of the case and the region.

Cost of out-of-court bankruptcy

The simplified bankruptcy procedure through the MFC is completely free for the debtor. All expenses for administering the procedure are borne by the state.

Legal consequences of bankruptcy for the debtor

Positive effects

Moratorium on creditors’ claims: from the moment the application is accepted for consideration, the accrual of fines, penalties and interest on the obligations included in the procedure ceases.

Suspension of enforcement proceedings: all enforcement actions by bailiffs are terminated.

Release from pressure from collectors: collection agencies lose the right to directly interact with the debtor after bankruptcy proceedings are initiated.

Debt write-off: After the procedure is completed, the debtor is released from most financial obligations.

Restrictions during the procedure:

• blocking of bank accounts and cards of the debtor
• Income management is carried out by a financial manager
• prohibition on making transactions with property without the consent of the manager
• possible restriction of the right to travel abroad
• ban on opening new accounts and receiving loans

Long-term consequences of bankruptcy:

Three year restrictions:

• ban on holding executive positions in legal entities

Five year restrictions:

• obligation to notify creditors of bankruptcy status when receiving loans
• ban on re-bankruptcy
• restrictions on work in credit institutions (5-10 years)

Debts that cannot be written off:

• alimony obligations
• compensation for damage to life and health
• subsidiary liability
• debts incurred after recognition of bankruptcy
• fictitious debts

Modern trends in the development of the bankruptcy institution

Legislative changes 2024-2025

In 2024, significant changes were made to the extrajudicial bankruptcy procedure. The main innovations include:

• increasing the maximum debt amount to 1 million rubles
• expansion of categories of citizens entitled to a simplified procedure
• reduction of the re-application period to five years
• automation of obtaining certificates through interdepartmental interaction

Digitalization of procedures

Electronic document management in the bankruptcy sphere is actively developing. The Social Fund of Russia has received the right to request information from banks for the extrajudicial bankruptcy procedure, which significantly simplifies the process for citizens.

The Problem of Bankruptcy Moratorium

In critical economic situations, the state may impose a temporary moratorium on initiating bankruptcy cases at the initiative of creditors. In recent years, such measures have been applied twice: during the COVID-19 pandemic (April 2020 - January 2021) and in connection with the introduction of sanctions (April - October 2022).

The moratorium provides for:

• prohibition of creditors from filing bankruptcy petitions against debtors
• suspension of enforcement proceedings
• termination of accrual of fines and penalties
• preserving the right of debtors to independently file for bankruptcy

Interaction with collection agencies

Collectors can participate in the bankruptcy procedure only if they acquire the right to claim the debt. After the debt is bought out, the collection agency becomes a full-fledged creditor with all the ensuing rights and obligations.

Rights of collectors in bankruptcy:

• filing an application for inclusion in the register of creditors
• participation in meetings of creditors
• receiving part of the funds from the sale of the debtor’s property

Restrictions for collectors:

• prohibition of direct interaction with the debtor after the initiation of the case
• interaction only through the financial manager
• compliance with the requirements of special legislation on collection activities

Statistics show an uneven distribution of bankruptcies across the country’s regions. Residents of large cities and economically developed regions are the most active in using bankruptcy procedures, which is explained by the higher level of indebtedness of the population and better awareness of the possibilities of legally resolving debt problems.

The institution of bankruptcy of individuals performs an important social function, providing citizens with the opportunity for financial rehabilitation in conditions of economic instability. The procedure helps reduce social tensions associated with the problem of indebtedness of the population and ensures a balance of interests of debtors and creditors.