Debt & Loans

Consequences of the bankruptcy of an individual

The bankruptcy of an individual is the official recognition of a citizen as insolvent. The results of a trial can only obtain bankruptcy status. However, it should be remembered that there are several consequences that financially insolvent debtors may face.

Restructuring and gradual repayment of debt

The restructuring procedure allows you to improve the debtor’s current financial condition by changing the loan transaction’s original terms. This effective tool for gradually repaying debts is used by creditors who try to avoid writing off debts after the debtor is declared bankrupt. However, restructuring brings benefits to the non-payer himself.

Consequences of the correct preparation and implementation of the restructuring plan:

  • Significant easing of financial pressure on the borrower.
  • Changing the initial terms of the loan agreement in favor of the debtor.
  • Gradual improvement of the financial situation of the defaulter.
  • Partial fulfillment of debt obligations, for example, making regular payments.
  • Refusal to accrue fines and penalties for existing obligations.
  • Cancellation of burdensome measures, including arresting current accounts and blocking bank cards.

The financial manager initiates activities related to the restructuring of debts. A lawyer or judge can also recommend a similar procedure when considering the case materials. Creditors can present claims to the debtor within 60 days of adding the bankruptcy data to the Register. Another ten days are allocated for developing a restructuring plan, valid for up to three years.

Individuals who can take part in the restructuring procedure:

  • Not previously declared bankrupt.
  • We are ready to pay part of the debts by changing the schedule and the amount of regular contributions.
  • Receive a regular income sufficient to pay off debt obligations.
  • Have not been convicted in the past under articles related to various economic crimes.

All interested parties agree upon the debt restructuring project. If the creditors and debtors reach a consensus, the action plan is submitted to the court for approval. The financial manager oversees the implementation of the debt restructuring guidelines. This specialist is entrusted with reporting and planning the subsequent stages of the bankruptcy procedure (realization of property to pay off debts and full or partial write-off of debts).

A settlement agreement between debtor and creditors

At the legislative level, the possibility of approval by the parties of the settlement agreement has been introduced. Such an agreement provides for the voluntary repayment of debts by the defaulter by fulfilling the plan agreed upon by the parties. The agreement specifies the terms and conditions for the termination of prosecution if the debtor fulfills its obligations. A peace settlement is available until an individual is declared bankrupt. Otherwise, the agreement is considered null and void (has no legal force).

Voluntary agreement to repay debts will allow:

  1. Suspend the judicial procedure for officially declaring the debtor bankrupt.
  2. Interrupt the process of implementing the debt restructuring plan.
  3. Refuse to attract and subsequently pay for the services of a manager.
  4. Reject the debtor’s demands for deferral of loan repayments.

A settlement agreement is the most comfortable and beneficial option for the parties to resolve a financial dispute. The court can consider any future disagreements during a citizen’s bankruptcy procedure. Suppose the debtor, who complies with the settlement agreement, refuses to make regular payments. In that case, the financial insolvency proceedings are automatically resumed, after which the procedure for selling the debtor’s property to enforce debts begins.

Confiscation and sale of the debtor’s property to pay off obligations

The bankruptcy case is considered closed after the full repayment of debts and the fulfillment of the terms of the settlement agreement or restructuring. The property sale procedure is introduced in case of refusal to cooperate with the manager or the complete failure of the financial recovery plan. This process is extremely difficult for an individual, not only in terms of potential financial losses but also from a moral point of view.

According to the law, the confiscation and sale of the following property can be used to collect debts:

  1. Various forms of real estate, from land to residential buildings.
  2. Vehicles of all types, brands, and models.
  3. Household, portable, and computer equipment.
  4. Luxuries.
  5. Professional equipment and property used for self-employment.

It is allowed to sell only property privately owned by the debtor at the time of receipt of the court verdict. An exception will be items necessary to maintain life within the established value of the current living wage.

It is impossible to confiscate:

  1. The only housing suitable for the debtor.
  2. Household items, including items for personal use (food, clothing).
  3. Domestic and breeding animals, as well as food, facilities, and tools for their maintenance.
  4. Seeds are needed for the next planting.
  5. Fuel for cooking and heating residential buildings or outbuildings.
  6. People with disabilities need vehicles.
  7. Prizes, awards, and memorable signs.

The manager carries out the property inventory with an entry in the Register within 30 days. Experts can be involved in this process and valuation activities. Specialists consider the level of wear and the market value of the items considered. The terms of implementation are agreed upon with the debtor and creditors, after which the court approves the package of documents. On average, the sale of property takes up to six months.

The debtor himself or one of the creditors, as well as the state body, can challenge the assessment results. An independent appraiser can be involved if the manager accidentally or deliberately makes mistakes at the inventory stage. The services of this specialist will be paid for by the person who initiated the second inventory procedure.

Ways to sell the debtor’s property:

  • Real estate, equipment, and vehicles worth more than a thousand dollars are sold at open auctions at a reduced price if the proceeds received are sufficient to pay off the debt.
  • Items priced below thousand dollars
  •  Are sold according to the sale method agreed by the parties.

After the sale of material assets at public auctions, the profit received is distributed among the debtors. The remaining funds and unrealized objects are returned to the debtor. The remaining debts are written off if the money received from the property sale is not enough to pay off obligations. A similar approach is also used if the debtor does not have ownership of any property.

The bankruptcy procedure will pass without problems if the debtor is ready to cooperate with the financial manager and court representatives. Do not shy away from providing documents and answers to the questions posed by the arbitrator. By contacting specialists, an individual who has encountered temporary difficulties gets a chance for a gradual restoration of solvency, thereby retaining the ownership of personal property.

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