The institution of personal bankruptcy, established by the Bankruptcy Procedures Code of Ukraine (BPCU), has become a real opportunity for citizens who have fallen into a debt trap to restore financial stability and regain peace of mind

1. Why Do Individuals File for Personal Bankruptcy?

Just ten years ago, the concept of “personal bankruptcy” seemed almost unimaginable to Ukrainians. People either lived with debt “for the rest of their lives” or became victims of debt collectors and endless enforcement proceedings.

The situation changed following the adoption of the Bankruptcy Procedures Code of Ukraine (the “Bankruptcy Code”) in 2019. For the first time, individuals were given a genuine legal mechanism to discharge their debts and start a new chapter in their lives.

The primary purpose of this procedure is to provide relief from overwhelming debt. Under the Bankruptcy Code, upon completion of the proceedings, a debtor may be fully discharged from their obligations to creditors, subject to a limited number of statutory exceptions, such as alimony obligations and compensation for damages.

Filing for bankruptcy may be appropriate where:

• The amount of debt exceeds the debtor’s actual ability to repay it;

• The debtor has no income or insufficient assets to meet their obligations;

• The debtor has multiple creditors, including banks, microfinance organizations (MFIs), and private lenders.

The commencement of bankruptcy proceedings results in the suspension of debt collection measures. Accordingly, personal bankruptcy is not an attempt to evade debt, but a lawful way to start a new financial chapter.

2. What Is the Personal Bankruptcy Procedure?

Personal bankruptcy is governed by Book Four of the Bankruptcy Code of Ukraine and consists of several stages.

Filing an application.

The application is filed by the debtor personally. Creditors cannot initiate bankruptcy proceedings against an individual.

The application must include a declaration of the debtor’s financial and property status, providing a comprehensive disclosure of income, expenses, real estate, vehicles, corporate rights, and other relevant assets.

The debtor must also provide a list of creditors and a proposed debt restructuring plan.

Commencement of proceedings.

The court reviews the submitted documents and opens the bankruptcy proceedings.

From this point onward:

• The accrual of penalties and default interest is suspended;

• Enforcement actions are suspended;

• The debtor’s right to freely dispose of their property is restricted.

An insolvency practitioner (a restructuring trustee) is appointed to oversee the proceedings.

Debt restructuring.

Debt restructuring is the preferred option where the debtor has a stable income.

A debt repayment plan is prepared, generally for a period of up to five years, and must be approved by the creditors.

If the plan is successfully completed, the remaining eligible debts may be discharged.

Liquidation of assets.

If the debtor’s income is insufficient to repay the debts, the court proceeds to the liquidation of assets.

Certain assets are exempt from enforcement under the law, such as a sole residence meeting specific statutory criteria and essential household items.

Completion of the procedure.

The court issues a ruling closing the proceedings and discharging the debtor from eligible debts.

This is the most significant outcome of the procedure for the individual concerned.

3. What Are the Risks and Potential Pitfalls?

Despite its obvious advantages, personal bankruptcy involves a number of challenges and risks that should be considered in advance.

These risks relate to financial obligations, reputation, legal matters, and taxation.

Financial costs.

Commencing bankruptcy proceedings requires the debtor to deposit a certain amount with the court to cover the insolvency practitioner’s remuneration.

This amount is generally UAH 30,000–50,000 or more, depending on the complexity of the case.

For many debtors, this represents a significant financial barrier, as the costs of preparing documents and carrying out notarial procedures must also be covered when filing the application.

These expenses should be planned in advance to prevent the procedure from becoming an additional financial burden.

Full transparency of financial and property status.

The court and the insolvency practitioner must obtain a complete picture of the debtor’s assets, income, and financial obligations.

Attempts to conceal assets or provide inaccurate information may result in the closure of the proceedings or even criminal liability.

Therefore, honesty and full disclosure are not mere formalities, but essential requirements for successfully completing the procedure.

Loss of assets.

Bankruptcy involves a liquidation stage during which valuable assets belonging to the debtor, such as vehicles, additional residential property, and jewelry, may be sold at auction.

The law provides for certain exemptions, including a sole residence and essential household items. However, debtors should generally be prepared for the possibility that their assets will be used to satisfy creditors’ claims.

Restrictions on filing for bankruptcy again.

The law provides that an individual may not file for bankruptcy again within five years after the completion of a previous bankruptcy procedure (Article 135 of the Bankruptcy Code).

Accordingly, debtors should carefully assess their financial circumstances and their ability to avoid further financial difficulties during this period.

Reputational consequences.

Information about bankruptcy may affect an individual’s credit history, business reputation, and the confidence of future partners or employers.

For entrepreneurs, founders of limited liability companies, and individual entrepreneurs (FOPs), the public nature of bankruptcy information is a significant factor that should be considered before deciding to initiate the procedure.

4. What Are the Consequences of Being Declared Insolvent?

Personal bankruptcy has both positive and negative consequences. These should be carefully considered before filing an application with the court.

They determine how the debtor’s life may change after the procedure is completed and what legal restrictions may apply.

Positive consequences

Full discharge from debts.

The law provides that, upon completion of the procedure, the debtor is discharged from eligible outstanding debts to creditors where the debtor’s assets are insufficient to satisfy them in full.

This means that even if the debtor previously had loans, borrowings, or outstanding liabilities to suppliers that could not be covered by their assets, such eligible debts may be considered discharged following the closure of the proceedings.

For many individuals, this represents a genuine financial fresh start — an opportunity to rebuild their lives without the constant pressure of debt collectors and enforcement officers.

Termination of enforcement proceedings.

Following the commencement of bankruptcy proceedings and the appointment of an insolvency practitioner, compulsory debt collection measures are suspended.

This means that the debtor may no longer face ongoing enforcement measures such as account seizures or the forced sale of assets in respect of the claims covered by the proceedings.

The debtor can focus on rebuilding their financial position and planning for the future.

The opportunity for financial recovery.

Debt relief gives the debtor an opportunity to restore financial stability, reduce ongoing stress, and establish a sustainable personal budget without constant creditor demands.

This psychological aspect of the procedure is often underestimated, yet it can play an important role in helping individuals regain control over their lives.

Negative consequences

Limited access to credit in the future.

Banks and financial institutions may take bankruptcy records into account when assessing credit applications.

As a result, obtaining a loan or other financing may become more difficult for a certain period, particularly for large amounts, long repayment terms, or favorable lending conditions.

Public disclosure of bankruptcy information.

To identify all creditors, an official notice regarding the commencement of insolvency proceedings is published in accordance with the procedure established by the Bankruptcy Code.

This may affect the debtor’s reputation, particularly if they are an entrepreneur or intend to conduct business in the future.

Challenges in conducting business or investing.

For individual entrepreneurs (FOPs) and founders of limited liability companies, bankruptcy may involve additional restrictions.

Certain transactions may become unavailable or subject to limitations, while the ability to attract investors or business partners may be affected.

Therefore, even after the discharge of debts, individuals should be aware that rebuilding their credit history and restoring the confidence of business partners may take time.

Conclusion

Personal bankruptcy is not merely a formal court procedure. It is a comprehensive legal mechanism designed to help individuals manage overwhelming debt and restore financial stability.

The process requires a thorough assessment of the debtor’s financial and property status, the preparation of a complete set of documents, and professional legal assistance.

An experienced lawyer can help prepare and file the application, develop a debt restructuring plan, and protect the client’s rights at every stage of the proceedings.

For those struggling with overwhelming debt, bankruptcy is not necessarily a defeat. On the contrary, it may be the only lawful and structured way to regain control over their financial future and their lives.