Consumer Insolvency: is it possible to create an inexpensive and simple system in Russia

In Russia, an attempt is taken to create a simplified scheme of insolvency of individuals. But the draft law got «stuck» in numerous governmental agencies at the stage of negotiation. The participants of the discussion session «Consumer Insolvency» at the III International Insolvency Forum talked about whether it is possible to work out a procedure that would be simple and at the same time would not lead to insolvency extremism.

Nikolai Nikolaev, Chairman of the Committee of the State Duma on natural resources, property and land relations of the Federal Assembly of the Russian Federation, said that this topic is very complex, because it has a lot of pitfalls. For instance, every time there is a discussion a question of possible abuse of legislative provisions is raised. «What is insolvency? Is it a sort of stigma, the end of your life, or a new opportunity, a new chance? What should insolvency look like? Our answer to this question also determines a course our legislation should take. Should it be based on economic needs or on some values? We are saying that our society must move towards taking care of people, of their interests. It is clear that in this respect we must see insolvency of individuals as a new opportunity for a person. Anyone can run into difficulties, therefore, every person should have a chance to rise to their feet and move forward. From the other hand, every time we talk about insolvency, the topic of fraud arises. It is a serious question as well: is the devil really so black as he is painted, and can absolute permissiveness actually lead to severe consequences or the risk of this scenario is low», — explained Nikolai Nikolaev.

The moderator also asked the participants and the audience whether it is possible to create a simple procedure that would not lead to insolvency extremism. The audience expressed their opinion in the official mobile app of the SPBILF. It turned out that 63% of the respondents answered «yes» to this question, while the others do not believe that it is possible.

Irina Bukina, Judge of the Supreme Court of the Russian Federation, said that high popularity of loans had led to a significant level of household debt, therefore, there are more people who want to get rid of their debts by means of insolvency procedure. For example, if we compare 2018 to 2017, the number of insolvency claims increased by 46%.

«There are problems in connection with Insolvency Law administration practice. For instance, the procedure still remains expensive for certain groups of people, mainly they are low-income citizens with consumer loans, and the number of such people is on the increase. Besides, the legislative bodies, perhaps, should reconsider and shorten the list of data items that has to be published in the Unified Federal Register of Data on Bankruptcy. Among other problems, it is worth mentioning that banks are reluctant to open accounts for finance managers, while citizens find it difficult to collect all required documents. We know about some situations when court-appointed trustees evade conducting insolvency cases, which led to the discontinuance of the proceeding. Generally speaking, the application of the Insolvency Law provisions does not encourage citizens who are in debt to take real actions in order to get out of their difficult financial situation: it does not oblige them to find a job or to sort through their income, expenses etc. Today they are more interested in how to get rid of their debts quickly, instead of conducting a process of debt restructuring», — said Irina Bukina, emphasizing, that the weakest point of the Law is that it has no mechanisms to tackle debtors’ dishonesty.

Alena Rudenko, Project Manager of the Nonprofit Foundation «Lawmaking Assistance Center», talked about the fact that the Law on Insolvency of Individuals is gaining popularity. «Since the Law on Insolvency has been introduced, the number of people declared bankrupt is increasing every year by around 1.5 times. It indicates the high overall level of awareness among citizens. The negative side of it is that the workload of courts is growing dramatically. According to Rosstat, the level of income of our population is decreasing for the 5th year in a row. If we compare this level to the one we had in 2013, it has dropped on average by 10.7-10.8%. The peak of the fall happened in 2016, when the procedure first became available. In 2017 we witnessed positive dynamics, a slowdown in decline, in 2018 the income dropped by 0.2% compared to the previous year», — the expert cited the statistics.

Alena Rudenko pointed out that in the last 5 years in Russia the poverty rate has been constantly growing. The minimal rate was in 2011-2012, it was 10-12%. After that, there was crisis, oil prices fell down, and the poverty rate went up reaching 13.3%. Positive dynamics started to be observed only in 2018, when the rate went down to 12.9%. «In 2016, when our income level decreased the most, the poverty rate became quite high, and we saw the loan market liven up. Seems like people started to take loans trying to ensure their well-being. And these loans were taken to make up for what we had lost, not for mortgages or property investments. For daily expenses. Unfortunately, in our country the poor consist of working-class people, not some marginalized groups. And the rate is growing proportionally to the number of children in a family, we can see problems faced by families with many children. As a result, insolvency procedure is often applied for by people without property», — commented Alena Rudenko.

The statistics shows that the Law on Insolvency officially covers citizens with more than 500,000 roubles in debt and who are more than 90 days behind in paying back the loan. About 4% of debtors are going through the insolvency procedure. The numbers of Russian citizens with less than 500,000 roubles in debt are way bigger: there are 8 million of them.

Dmitry Yanin, Chairman of the Board of the International Confederation of Consumer Societies, is sure that, according to the statistics, the Law on Insolvency of Individuals is a failure. «The procedure turned out to be too expensive, complicated and long. The fact that only 80,000 people out of millions applied for it is a verdict for the Law. We need to work out how to create a new model. For 10 years in Russia the loans market was governed by the rules of the ruthless Wild West. It is time to give those in debt a chance to get out of the difficult situation by means of a simplified cheap procedure without business managers. Meanwhile we advise people to save money for insolvency procedures. Because, unfortunately, you have to save up at least 50,000 roubles somehow, and on average the sum equals 100,000 roubles. But this situation needs to be changed. First step is to make the procedure cheaper, second, it is necessary to introduce standards of responsible loan provision. As a result, the overall level of household debt would not be so high. And third, there should be some kind of social support to people with children and to those who can’t apply for the insolvency procedure because of low income», — said Dmitry Yanin.

It is important to say that during the discussion the foreign experts shared with Russian colleagues their experience of work in the sphere of loan services.

The discussion was moderated by Nikolai Nikolaev, Chairman of the Committee of the State Duma on natural resources, property and land relations of the Federal Assembly of the Russian Federation. The list of participants of the discussion consisted of Irina Bukina, Judge of the Supreme Court of the Russian Federation; Jason Kilborn, Professor of Law at John Marshall Law School; Luciano Panzani, President of the Court of Appeal of Rome; Alena Rudenko, Project Manager of the Nonprofit Foundation «Lawmaking Assistance Center» and Dmitry Yanin, Chairman of the Board of the International Confederation of Consumer Societies.