Coronavirus and personal bankruptcy

Russian courts have declared more than 22K people bankrupt since the beginning of 2020, however, according to experts, many more Russians are going to end up financially insolvent and will require some legitimate form of debt relief due to the pandemic. The demand for bankruptcy support services is predictably increasing – and accordingly, in March alone, the demand for buying personal bankruptcy business franchises increased several times.

The upward trend in the personal bankruptcy market had begun even before the coronavirus lockdown and self-isolation were announced. In the first quarter of 2020, the number of personal bankruptcy filings in Russia grew 68% compared to the same period in 2019, according to the legal entity statistics on the Fedresurs website. Courts declared more than 22K Russians bankrupt, including sole business owners – mainly in Moscow, the Moscow Region and the Krasnodar Territory.

An individual can file personal bankruptcy in Russia if they realize they will not be able to continue paying their debts; that happened in 93% of bankruptcy cases.

The novel coronavirus outbreak can send the number of potential bankruptcies up exponentially. The number of cases may surge 2-3 times, according to the speakers at Personal Bankruptcy: Challenges of a Pandemic discussion held as part of the St Petersburg International Legal Forum online. They announced that, according to United Credit Bureau estimates, 3.6 mio borrowers, their debt ranging from RUR 50K to 500K ($670-$6.7K), had overdue payments over 90 days as of the beginning of April.

The peak of personal bankruptcy filings is expected in mid-May, filings by sole business owners in June, according to analysts at the Help Me federal network for assistance to credit debtors.

Lawyers also believe that the insolvency services will soon be in high demand.

“While in the business community, bankruptcy is not just a method of debt relief but also a way of financial rehabilitation and restoring financial solvency, individuals consider bankruptcy only as a way to write off debts – especially because the judicial practice related to debt relief usually works in a debtor’s favor,” notes Tatyana Glushko, Development Director of the Legal to Business legal strategy bureau.

However, declaring oneself a bankrupt is not that easy right now. It is estimated that the insolvency procedure may cost an individual at least RUR 50K ($677), including court-appointed receiver fees, the bankruptcy petition processing fee and the fee for entering the bankruptcy records in the federal insolvency registry.

In early April, Prime Minister Mikhail Mishustin announced that the personal bankruptcy procedure will be relieved of charges due to the coronavirus outbreak. To file a free petition, petitioners must provide their information to the federal registry themselves or via a multi-service center. But the simplification of the personal bankruptcy procedure has been stalled despite the president’s recommendation to take necessary action until April 17. The second reading of the amendments had to be postponed, mainly because they contained extremely strict criteria for debtors.

According to a survey by the Financial University under the Government of the Russian Federation, 5% of residents of big and medium-sized cities are willing to undergo the simplified insolvency procedure. The loan and tax deferment provided for businesses by the government is not enough, according to Help Me founder Svetlana Martos.

“The deferment will only help those whose income went down insignificantly, or not more than 30%. For everybody else, who lost their jobs or whose businesses collapsed overnight, these measures are pointless,” the expert concluded.

By Anna Voznyuk

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