After a bankruptcy lawyer files an application on your behalf with the court asking that you be declared bankrupt, the court will have two options:
- Starting the sale of property is an integral step towards complete freedom from debt.
- launch a debt restructuring procedure - review the payment schedule and draw up a new one while preserving the debts.
And if implementation sounds worse than restructuring, in reality everything is exactly the opposite.
We recommend that you read What is the sale of property
In what cases is debt restructuring prescribed?
Despite the fact that it is most often assigned by default in the bankruptcy procedure of an individual, a number of conditions must be met
so that the court introduces a debt restructuring procedure in relation to the debtor:
- the bankrupt must have a stable source of income;
- the debtor has not been declared bankrupt over the past 5 years or has not been subject to a restructuring procedure over the past 8 years;
- the debtor’s income is sufficient to create a payment schedule lasting up to 3 years, the implementation of which will satisfy most of the creditors’ claims;
It is worth noting that debt restructuring during the bankruptcy of a citizen is introduced only if one of the parties has not filed a petition to skip this procedure and introduce the sale of property.
Purpose of bankruptcy of an individual
The purpose of bankruptcy is not to quickly and thoughtlessly write off debts. Initially, when listing the procedures in the law, the legislator talks about their sequence.
The hope is to return the debtor to the level of solvency in the debt restructuring procedure. The accrual of interest, fines, and penalties stops—thus, the debt is “frozen.” At the same time, enforcement proceedings against the debtor are suspended, and, as a result, collections from wages and other payments on account of the debt are stopped. In these “greenhouse” conditions, the financial manager draws conclusions about the debtor’s ability to restore solvency. For the court to approve a debt repayment plan in the restructuring procedure, a necessary condition is, firstly, the debtor’s consent to its implementation, and secondly, the possibility of full repayment of the overdue debt and return to the payment schedule for 3 years at the expense of an existing source of income. Such a debt restructuring plan must be approved by a meeting of creditors. Without the approval of a meeting of creditors, a debt restructuring plan can be approved for a period of no more than 2 years.
Court hearing in case of bankruptcy of an individual
At the first court hearing, when the application submitted by the debtor is considered, its validity, a decision is made on what procedure to introduce in relation to the debtor. The court is given the right to introduce both a sequence of procedures, that is, to apply debt restructuring, and to immediately declare the debtor bankrupt. The court may, at the request of the debtor, skip debt restructuring and introduce the sale of property.
And here the existing practice of the region matters. For example, in Moscow, if there is no income or if its size does not allow paying off creditors for 3 years, the court, preferentially, grants requests to introduce a procedure for the sale of property, bypassing the debt restructuring procedure. And in St. Petersburg, the court quite often refuses to satisfy such requests. The debtor has income, which means he has the ability to repay the debt. According to the position of some courts, the bankruptcy procedure is a compromise between a creditor and a debtor who strives, but experiences objective difficulties, in repaying his debts. Therefore, the legislator, and now the court, are counting on the active position of the creditor in the debt restructuring procedure, on the possibility of offering the debtor a lenient debt repayment schedule, reducing penalties, and forgiveness of part of the debt not repaid during the implementation of the restructuring plan.
But the practice is that creditors, with rare exceptions, do not show a desire to conduct a dialogue with the debtor, negotiate and forgive. Therefore, the stage of debt restructuring is considered by the courts as obtaining an objective picture of the structure of the debtor’s liabilities and assets, as a result of the work of the financial manager in the procedure. He analyzes salary data, makes inquiries about the debtor’s property, creates a register of creditors’ claims, holds the first meeting of creditors and brings up issues regarding the further procedure for their discussion.
And now the main question asked in the title of the article: is restructuring as bad as the first procedure applied in bankruptcy?
Obvious disadvantage:
The timing of all activities is usually increased by six months - the standard period determined by law for each applied procedure.
Main plus
– when the first procedure is introduced, all enforcement proceedings against the debtor are suspended. Deductions from wages, pensions and other income cease. During the entire debt restructuring procedure, the debtor receives his salary in full and disposes of it at his own discretion (without a financial manager). Agree, this fact alone will allow the debtor to breathe more freely and feel that the law is already working for him.
The cost of bankruptcy proceedings for an individual in the event of an “extra” debt restructuring procedure
How will the cost of the bankruptcy procedure change if the court decides to apply the debt restructuring procedure first? The price of our legal support will not change and the entire scope of work agreed upon when signing the contract will remain until all activities are completed and obligations are released. It will be necessary to incur the same costs of paying the state duty, make a deposit for the first procedure of 25,000 rubles, pay for publications and postage. Only it will be easier for a working debtor to do this without resorting to the help of relatives, because he will receive his salary in full. And an affordable installment plan for paying for basic support services will allow you to pay us by the end of the first procedure. There will be no need to worry about where to get money if you are declared bankrupt, because only the subsistence level will be allocated from the bankruptcy estate.
95% of our clients bypass the “unnecessary” debt restructuring procedure, because... We almost always send a reasoned petition to the court to skip the debt restructuring procedure, citing a complete lack of income or its insufficient amount. By doing this, we save the most precious thing a person has - time. But if the debtor works, then there may be two procedures. Therefore, when contacting our company, in a personal conversation, we agree with the client all possible options and scenarios for the development of events and explain how this will affect the outcome of bankruptcy.
If you have any questions, call us at 8-800-333-89-13
or write through an online consultation on the website.
What is debt restructuring?
Debt restructuring in the event of bankruptcy of an individual is one of two procedures carried out by a financial manager in the course of recognizing a citizen as financially insolvent. The financial manager receives a certain amount of money for carrying out this procedure.
The remuneration amount is 25 thousand rubles. This amount is paid by the bankrupt upon filing the application or before the first court hearing, plus 7% of the amount of repaid creditor claims (paid at the end of the procedure from the funds received).
Let’s briefly consider what debt restructuring of an individual is and what it includes:
- The essence of restructuring is to repay debts to creditors by making monthly payments according to the developed schedule.
- Upon fulfilling the requirements of the plan, the debtor gets rid of debts while retaining all of his property.
- If the bankrupt fails to comply with the terms of the plan, a procedure for the sale of property is introduced.
- The debt restructuring period can be no more than 3 years; the plan itself is calculated taking into account the debtor’s income, the size of the creditors’ claims and their number.
- The parties can appeal the developed plan and submit their own schedule for consideration.
Restructuring in bankruptcy is completed even if the bankrupt partially fulfills the requirements of the approved plan. The rest of the citizen's debt to creditors will simply be written off.
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Conditions for restructuring in case of bankruptcy of an individual
Not every borrower meets the conditions required to undergo this procedure. So, who can undergo restructuring?
debt of an individual?
- A person who has a permanent income of at least 30,000 rubles.
- He must not have a criminal record for economic crimes or they must be expunged.
- There should be no existing administrative penalties.
- No signs of fictitious bankruptcy.
- The citizen has not undergone loan restructuring in the last 8 years.
- The citizen has not received bankrupt status for a certain period of time (at least 5 years).
Let us note that individual entrepreneurs (IP) undergo the restructuring procedure with slight differences in the documents, but in the same order.
On May 17, 2021, the State Duma received an agreed version of amendments to the law “On Bankruptcy”. Most of the innovations concern the procedure for declaring legal entities insolvent, but there is news for debtors - individuals. persons
A lot of amendments concern the procedure for restructuring the debts of legal entities. This clearing, in the literal sense of the word, has been plowed anew. But it should be noted that the procedure for restructuring the debt of individuals. persons in court after the adoption of the amendments will remain virtually unchanged.
But there is one big BUT - the law itself must change its name and, in general, its essence after the amendments are adopted. It is proposed to call it the Law “On Restructuring and Bankruptcy”. This means that the state does not focus on writing off debts, but rather on paying them off - albeit stage-by-stage, spread out over time and with the writing off of part of the penalties, fines and interest. But for the return of the debt, and not for its complete forgiveness.
After the amendments are adopted, the provisions of the law will come into force within a year, that is, until the end of 2022.
Think about it: maybe you shouldn’t put off filing for bankruptcy?
How is restructuring carried out?
Responsibility for carrying out the procedure rests with the financial manager
. As part of the performance of his duties, he must:
- publish messages about the bankruptcy of a citizen with the EFRSB and the Kommersant newspaper;
- provide written notification to creditors within 15 days of the introduction of a debt restructuring procedure;
- accept from the citizen management of all his funds and property, including bank cards;
- develop a debt restructuring plan that satisfies the interests of the parties and the debtor himself, and present it for review at a meeting of creditors;
- if necessary, make changes to the plan or submit objections to the changes proposed by the parties;
- approve the restructuring plan in court, then monitor its implementation by the citizen;
- a month before the end of the plan, prepare a report and submit it to the court for consideration.
Federal Law on Bankruptcy No. 127-FZ strictly defines the conditions and procedure for debt restructuring within the framework of bankruptcy of individuals. Any discrepancy or failure by the financial manager to fulfill his duties can be appealed in court. Depending on the seriousness of the violation, disqualification and reappointment of the responsible person are provided.
How to write to a bank about debt restructuring
No one is immune from financial problems. If such problems overtook you at a time when you have loan obligations to the bank, there is no need to panic or hide, there is a way out - debt restructuring. In order for the bank to consider this option, you must notify it in writing of your concerns.
You can write a letter in free form, but it must reflect the main points:
- date of receipt and loan amount;
- at what point did you start repaying the loan, how much have you repaid so far, how much do you still have left to pay;
- from what moment did you stop paying the loan in accordance with your obligations;
- What kind of financial difficulties are you experiencing? This point needs to be written down - on its basis, the bank will make a decision on exactly how best to restructure your debt (offering you a “credit holiday” or increasing the loan term by reducing the rate);
- what amount are you willing to pay monthly under the new conditions.
You need to write two copies, take them to the bank, register them and wait for an answer.
Differences between judicial and banking restructuring
In contrast to the restructuring provided by banks, which is nothing more than a type of loan refinancing, the judicial procedure is much more profitable for the debtor. Thus, debt restructuring through the court has the following advantages
:
- the interest rate is set at the level of the Central Bank refinancing rate, while banks adhere to standard interest rates or even introduce an increased rate;
- during bank restructuring, the requirements for the borrower are the same as when applying for a loan, and during restructuring during the bankruptcy procedure of individuals, the debtor has only one requirement - the presence of a stable source of income;
- the duration of judicial restructuring in bankruptcy cannot exceed 3 years, but for banks this period is not limited;
- Bank restructuring is introduced only in relation to one loan issued by the same bank, and in the course of bankruptcy of individuals it affects debts to all creditors of the citizen: banks, individuals and legal entities, government agencies.
It is also worth noting that banks issue decisions on debt restructuring at their own discretion. There is a possibility of being rejected
in restructuring. As for the judicial procedure within the framework of declaring an individual financially insolvent, in this case the right to apply debt restructuring is assigned to the citizen on the basis of the Bankruptcy Law.
You can learn more about the procedure for debt restructuring and what it is, as well as get professional support from credit lawyers at any stage of bankruptcy by calling or leaving us a request for a call back from a specialist. We will help you ease the burden of debt and even write off your debts completely legally!
Let us help you write off your debts
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Consequences of implementing the debt restructuring plan
The consequences of the restructuring, if the approved schedule is successfully implemented, are as follows:
- all financial claims of creditors against the debtor are removed;
- restrictions on the use of funds and transactions with property cease to apply;
- all enforcement proceedings on closed debts are canceled - according to Law No. 127-FZ “On Bankruptcy”, all current debts of a citizen will be closed within the framework of the case of declaring him financially insolvent, except for: debts affecting the identity of creditors;
- arrears in payment of wages (if an individual entrepreneur goes bankrupt);
- compensation for harm;
- payments imposed as punishment for criminal and a number of administrative crimes.
It is also worth remembering that, as when a citizen is declared bankrupt through the sale of property, upon completion of the restructuring
to him:
- You cannot re-file for bankruptcy within 5 years;
- for 5 years, the loan application must indicate the fact of restructuring;
- for 3 years it is prohibited to hold leadership positions and be a member of shareholders and members of the Companies.
Have you thought about how important it is to restructure debts? Our bankruptcy lawyers will develop an optimal restructuring plan for you and provide professional support at all stages of bankruptcy. Contact specialists in a way convenient for you and get an effective way out of a difficult financial situation. We will protect your interests and help you write off all your debts legally!
Video on the topic
Bankruptcy procedure
Author:
Vladislav Kvitchenko
CEO . Practicing lawyer in the field of bankruptcy of individuals. persons Since 2015, she has been successfully handling insolvency cases. Vladislav is brilliantly versed in bankruptcy law, gives expert comments on legal situations and actively publishes in specialized publications.
Methods and types of debt restructuring
As we noted above, there are several ways to restructure financial debts, so before starting this procedure, the lender and the borrower must agree on choosing the most effective one. Since the restructuring scheme also depends on the specific type of debt obligation, we propose to dwell in more detail on each of its methods.
Prolongation.
This is the most common type of financial debt restructuring, which involves increasing the loan term and reducing monthly payments. But, prolongation usually implies an increase in the total loan amount due to the accrual of additional interest.
Let's look at the mechanism of its action using a specific example.
Let’s say an organization received a loan from a bank in the amount of 5 million rubles for a period of 18 months at 20% per annum.
In accordance with the initial terms of the loan, the overpayment on this loan will be approximately 792 thousand rubles (subject to differentiated payments).
Now imagine that unexpected difficulties in business development led to the fact that the company had to ask the bank to restructure the debt by prolonging it immediately after receiving the loan payment. The lender made concessions and increased the loan term exactly twice, i.e. to 36 months.
Through a series of calculations, we obtain a new amount of overpayment on the loan taken out, which will amount to 1.53 million rubles.
Thus, with the increase in the debt repayment period, the total amount of overpayment increased significantly.
Reducing the interest on the loan.
This type of debt restructuring is the most desirable for the borrower, but banks do not often offer such conditions to their debtors. Reducing the loan term is possible only if there is high loyalty on the part of the bank and an ideal credit history of the borrower.
Change of payment schedule.
This method of debt restructuring is especially relevant for those borrowers whose business is associated with seasonal fluctuations in demand for the product produced or services provided. In this case, the bank can change the payment schedule taking into account the characteristics of the debtor’s income generation.
Credit holidays
– a fairly popular type of credit debt restructuring. Credit holidays can represent a deferment of payment only on the principal debt, i.e. the borrower continues to pay interest monthly according to the established schedule, and the payment of the principal debt is postponed by the bank for a certain period.
In addition, credit holidays can be provided by the bank in relation to all loan payments, including interest. Please note that credit holidays also have their disadvantages: when their term ends, the payment amount will increase, since the borrower will have to catch up with the debt repayment schedule. In addition, due to the accrual of additional interest, the total overpayment on the loan will increase.
Changing the loan currency.
Another method of restructuring credit debt, which is used in cases where, after the loan was issued to the borrower, there was a rapid change in the exchange rate (for example, devaluation).
Refinancing.
This method is considered the most favorable for the borrower. Its essence is to provide the debtor with a new credit loan on more favorable terms, while part of the amount received is automatically used to fully repay the debt under the previous obligation. Plus, when refinancing, banks often cancel the borrower’s debts for accumulated penalties.
In addition to the above, in the banking sector there are other ways to restructure the financial debt of individual entrepreneurs and legal entities. Among these methods, the bank can choose the most suitable one, depending on the financial solvency of a particular client:
Restructuring method | Extending the payment period | Changing the amount | Paying off debt with assets | Reducing the amount of debt | Previous conditions |
Changing the terms of the contract | Yes | Yes | Yes | No | No |
Drawing up an additional agreement on novation | No | No | Yes | No | No |
Signing a compensation agreement | No | No | No | Yes | No |
Registration of a cession in the form of assignment of rights of claim | – | – | – | – | No |
Debt transfer | – | – | – | – | Yes |
Debt offset | No | No | No | Yes | No |
Debt forgiveness | No | Yes | No | Yes | No |
Converting a loan into shares | No | No | No | Yes | No |
Changes concerning the work of arbitration managers
The legislator proposes to introduce new tools to ensure “transparency” of procedures:
- state register of arbitration managers (maintained to carry out the procedure for random selection of self-regulatory organizations or arbitration managers);
- unified state register of arbitration managers.
The innovations fully reflect the meaning of the president’s order to improve the bankruptcy institution. Similar systems have been operating successfully for a long time in a number of countries: Hungary, Serbia and others.
The approach that is enshrined in the law now contains many loopholes for unfair actions of all parties to the process. In fact, the outcome of the process in many procedures depends on who proposes the candidacy of an arbitration manager (the privilege of the first applicant). This is due to the low remuneration of arbitration managers and the high rates in the bankruptcy procedure: for example, the subsidiary liability of controlling persons is not subject to write-off in the personal bankruptcy of an individual in accordance with clause 6 of Art. 213.28 of the Federal Law “On Insolvency (Bankruptcy)” and often falls into the category of “eternal” debts. Even real “pure” not imaginary transactions can be challenged on formal grounds during the period of preference. Bidding procedures are also not perfect and the temptation to preserve assets without formally breaking the law is great.
It is planned that for each restructuring and bankruptcy procedure the arbitration manager will receive a certain number of points, and all debtors will be divided into several categories based on status, income and total value of assets according to the accounting (financial) statements as of December 31 of the previous calendar year. The register will display information about the debtor and each SRO will be able to offer itself to present to the arbitration court a candidacy for an arbitration manager for approval in a bankruptcy case.
The changes should also affect the remuneration of arbitration managers: as before, it is assumed that it will consist of a fixed part and interest.
To shift interests in favor of procedures that restore solvency, the remuneration of the anti-crisis manager is expected to be set at a monthly amount exceeding the amount of payment for financial and bankruptcy managers.
In addition, it is proposed to establish additional monetary incentives for anti-crisis managers in the form of a percentage of the amount of increase in the value of the debtor’s net assets for the period from the date of approval of the debt restructuring plan to the date of completion of debt restructuring (in fact, from the possible profit of the debtor).
Unlike anti-crisis managers, the remuneration of financial and bankruptcy managers will now be a one-time remuneration amount for the entire procedure, which should presumably reduce the time required for bankruptcy proceedings (now payments are made monthly and there are frequent abuses on the part of arbitration managers in order to delay the procedure and increase remuneration).
general information
Restructuring is beneficial to both parties in the event of debt or late payments. It is part of the pre-trial dispute resolution procedure. Appeal to the court does not always lead to actual collection of the debt.
The initiative for such an agreement can come from both the creditor and the debtor. The debtor may send the other party a request to change the terms of the previously concluded agreement. He must attach documents to his application that will confirm his financial difficulties. The creditor, if he is the initiator, sends a proposal for restructuring along with the claim to the debtor.
The concluded restructuring agreement becomes the main contract.