Nazar Rakhimov, head director for Legal Affairs of the Associations of Financiers of Kazakhstan ULE, told Fingramota.kz about how to settle the debt on his loans with a creditor as a part of bankruptcy proceedings during a live broadcast on Instagram.
Who can apply them, tell us more about bankruptcy and solvency restoration procedures?
On March 3, 2023, the Law of the Republic of Kazakhstan ‘On the restoration of solvency and bankruptcy of citizens of the Republic of Kazakhstan’ (here in after referred to as the Bankruptcy Law), which was signed by the President on December 30 last year, came into force. A balance of interests of both parties achieved through the provisions of this law take into account the interests of both debtors and creditors.
If we consider the law in more detail, then it is a procedure according to which debtors can be released from their financial obligations not only to banks and microfinance organizations, but also to other creditors.
As a part of the first procedure – out-of-court bankruptcy – citizens can apply for debt relief in relation to banks, microfinance organizations and collection agencies.
But it should be noted that this procedure can be used by the people who do not have property, and their total loan obligations do not exceed 1,600 MCI, today it is 5,520,000 tenge. Also, a prerequisite is the absence of repayment of their obligations within 12 consecutive months.
The second procedure – is judicial bankruptcy.
This includes all debtors who have obligations for an amount exceeding the threshold of 1,600 MCI. Citizens, who meet this criterion can file for bankruptcy in the court at the place of the registration.
The third procedure is called ‘restoration of solvency’, and the debtor, who has gone through it is not declared bankrupt.
This procedure can be used by citizens whose total liabilities do not exceed the value of their property.
Tell us more about the procedure for settling overdue debts.
I want to warn you, when a person files for bankruptcy, he must attach to the application a list of his creditors, as well as a document confirming an attempt to settle his debt. This procedure is clearly defined in the laws on banks and microfinance activities. Within 20 days from the date of the delay, the lender notifies the borrower about it, and here it is important not to ignore this notice. If you have financial difficulties, then your creditor can resolve financial problems, and not the state body and some other institutions that, by law, should not interfere in the contractual relationship between you and the bank of MFI.
Within 30 days, the borrower must contact the lender and offer forms of problem debt settlement, that is, how he considers it possible to get out of this situation. This is either a deferment, or a reduction in monthly payments, a change in the schedule.
This procedure is called restructuring, that is, changing the procedure for fulfilling a monetary obligation.
You cannot meet the payment schedule for a loan, for example, due to certain circumstances – illness or loss of a source of income. You must notify the bank in a timely manner and send him an application. The bank considers this application within 15 days, after which it agrees with your terms of restructuring, offers its own alternative option, or refiuses, indicating the reasons.
What happens if the borrower does not contact the financial institution in case of delay?
In this case, the bank will be forced to take measures to collect the debt: use payment requests, go to court, to a notary for issuing executive documents. Each procedure, of course, has a consumable part. If an application is submitted to the court, for example, the bank pays the state fee, the bailiff also receives his share, and all these costs are included in the debt of the borrower, which begins to grow, and eventually becomes an even heavier burden for the debtor.
Sooner or later, the borrower will have to comply with a court decision, or the requirements of private bailiffs. The debt will not disappear anywhere; it will have to be repaid, so at the first stages you need to meet the needs of the creditors.
If the debtor does not make contact with the bank or MFI, then the credit institution believes that he does not want to, or hides his assets and sources of income, and so on. I consider this approach unconstructive and I recommend that all emerging problematic issues related to the payment of loans be resolved at the negotiating table with your creditor.
What are the consequences for citizens who have applied bankruptcy procedures?
First of all, I want to warn Kazakhstan, who wish to apply bankruptcy procedures.
Attention! It is not a ‘credit amnesty’ from the state – the Bankruptcy Law does not pursue such goals. Bankruptcy should be considered by citizens as an extreme, forced measure, and the drafters of the Law and authorized state bodies constantly inform about this. Bankruptcy can only be applied when all other measures have failed, when the debtor really does not have any mechanisms its debt burden.
Secondly, in no case the bankruptcy law should be considered as an opportunity to avoid liability. If this fact is revealed, for example, concealment of property and so on, administrative liability and cancellation of bankruptcy procedures are provided.
Thirdly, after the application of bankruptcy procedures, a person will not be able to receive a bank or a microcredit within a five-year period, and will not even be able to act as a guarantor or co-borrower. A citizen, who has the status of ‘bankrupt’ will not be able take part in state preferential programs for lending to vehicles or mortgages. And even after 5 years, according to the internal policies of credit institutions, most likely creditors will show close attention to these persons.
And one more thing that is important to know about – for seven years, persons with the status of ‘bankrupt’ cannot re-apply for this procedure.