This article offers a comprehensive overview of personal bankruptcy in 2025, detailing how individuals can declare themselves bankrupt, who qualifies, the expenses involved, and the implications for debtors. For many, personal bankruptcy represents the only legal avenue to escape severe financial distress.
The Essence of Personal Bankruptcy
Personal bankruptcy is a legally recognized state where a citizen is unable to fully settle their debts with creditors or fulfill mandatory payments. This process offers a legitimate opportunity for many to overcome financial difficulties, allowing for the discharge of debts from loans, utility bills, taxes, and other obligations. The procedure is regulated by Federal Law No. 127-FZ of October 26, 2002, titled “On Insolvency (Bankruptcy).”
Federal Law on Bankruptcy with Recent Amendments
Under federal law, personal bankruptcy entails an arbitration court formally acknowledging an individual`s inability to meet financial commitments and settle accounts with creditors. The law clearly delineates scenarios where a person is compelled to file for bankruptcy versus when they can initiate it voluntarily.
An individual is legally bound to initiate bankruptcy proceedings if their cumulative debt to organizations and individuals surpasses 500,000 rubles and payment delays have extended for three months or more. However, it is not mandatory to await these specific conditions. A bankruptcy application can be submitted with a lesser debt amount, such as 200,000 or 300,000 rubles. Creditors themselves or an authorized body, like the tax service, can also initiate a bankruptcy case.
This procedure can be quite costly. In addition to state fees, the prospective bankrupt must cover expenses for publishing announcements in the “Kommersant” newspaper and the Unified Federal Register of Bankruptcy Information. When factoring in the services of a financial manager, legal expenses for court proceedings, and postage for document submission, the total cost can reach or even exceed 100,000 rubles.
To enhance accessibility, the bankruptcy procedure was streamlined in 2020. Debtors now have the option to declare bankruptcy free of charge and without court intervention by applying through a Multifunctional Center (MFC). This simplified process is known as out-of-court personal bankruptcy and incurs no fees.
Benefits of Personal Bankruptcy
Upon declaring bankruptcy, an individual`s debt ceases to accumulate, meaning no further interest, penalties, or fines are charged. Once the process concludes, the debt is discharged. This frees the individual from having to engage with bailiffs and collection agencies, who lose the right to pursue claims for past obligations. Furthermore, judicial bailiffs terminate enforcement proceedings and lift all imposed restrictions, including asset freezes and travel bans.
“Many mistakenly believe that bankruptcy carries a lasting stigma, suggesting it prevents future loans, international travel, or continued employment. This is simply not true. Dozens of individuals have successfully obtained loans post-bankruptcy. International travel is permitted not only after, but even during the procedure. Moreover, employers are not notified of the situation, as neither the individual nor the financial manager is obliged to inform them,” explained lawyer Lilia Shikh.
Judicial Bankruptcy in 2025
To declare bankruptcy through the judicial system, an application must be submitted to the arbitration court. This can be initiated by the individual seeking bankruptcy or by a creditor.
When Can One Declare Bankruptcy?
According to the relevant Federal Law, a Russian citizen is required to initiate bankruptcy proceedings if their total debt exceeds 500,000 rubles and there has been a three-month delay in fulfilling their obligations.
If the debt is less than 500,000 rubles, but the citizen is genuinely unable to repay it and is deemed insolvent, they retain the discretion to decide whether or not to file an application.
Conditions for Personal Bankruptcy
For the bankruptcy procedure to be initiated by the debtor, the following conditions, indicating the citizen`s insolvency, must be met:
- Inability to fulfill financial commitments;
- Asset value is less than the total debt;
- Presence of overdue debts;
- Enforcement proceedings have been initiated against the individual.
Additionally, the following requirements must be satisfied:
- The individual must not have been declared bankrupt within the preceding five years.
- The individual must not have been found guilty of fraudulent activities, malicious evasion of debt repayment, or providing false information during any prior bankruptcy.
An individual can also declare bankruptcy if they face unforeseen circumstances preventing them from fulfilling their obligations, such as job loss, severe illness, property damage, or natural disasters.
How to Declare Bankruptcy
To declare bankruptcy in 2025, one can submit an application and all necessary documents to the arbitration court or seek assistance from an MFC.
The Bankruptcy Procedure
The stages of the bankruptcy procedure are:
- Gathering all required documents.
- Paying the state duty.
- Selecting a financial manager.
- Submitting documents to the court.
- Court review of the case, during which the court will determine whether to proceed with debt restructuring or asset realization.
- Providing the court with a report on the completed procedure and formally recognizing the citizen as bankrupt.
How to File for Bankruptcy in Court
“To file for personal bankruptcy in court, an individual has three options: personally deliver documents to the arbitration court`s chancery at their place of residence and obtain an acknowledgment stamp, send documents by postal service, or utilize the `Moi Arbitr` system to upload the application and its attachments as scanned copies,” explained Lilia Shikh.
Required Documents for Bankruptcy Proceedings
Personal documents needed for the procedure:
- Copy of passport.
- Individual Taxpayer Identification Number (INN).
- Pension Insurance Policy Number (SNILS).
- Marriage certificate (if applicable).
- Birth certificates of minor children (if applicable).
- Marriage contract (if applicable).
- Divorce certificate (if applicable).
- Court decisions on property division (if applicable).
Documents pertaining to indebtedness:
- Credit agreements.
- Loan agreements.
- Credit card agreements.
- Receipts for utility payments.
- Tax notifications.
- Court decisions on debt recovery (if any).
Documents confirming assets and income:
- Property ownership certificates (real estate, vehicles, securities).
- Bank account statements.
- Employment contract and income statements (2-NDFL).
- Pension certificate and pension statements.
Documents related to transactions made in the last three years:
- Sale and purchase agreements.
- Donation agreements.
- Other significant property transactions.
Documents confirming circumstances preventing the fulfillment of financial obligations (if any):
- Medical certificates.
- Employment termination documents.
- Certificates of property damage due to disasters.
Also required for filing the application:
- Receipt for state duty payment.
- Confirmation of deposit for the financial manager`s remuneration.
As of July 1, 2024, the list of documents that a bankrupt must personally provide has been streamlined. Certain certificates are now requested through the interdepartmental electronic interaction system (Federal Law of August 4, 2023, No. 474-FZ), including:
- Extracts from the Unified State Register of Legal Entities/Individual Entrepreneurs.
- Information about open bank accounts.
- Information from tax authorities.
- Information about registered vehicles.
Agencies are required to respond within two working days (tax authorities within three days). If discrepancies arise between information from the electronic system and a paper certificate (if submitted by the debtor), the electronic data will take precedence.
Debt Restructuring
“Restructuring involves restoring an individual`s solvency by modifying the terms of debt repayment to creditors. The court may deem the application valid and initiate a debt restructuring procedure,” explained Lilia Shikh. This interim court decision signifies that:
- The debtor`s property is not yet subject to realization.
- The debtor retains the right to utilize their income (subject to certain limitations).
- Interest and penalties on debts cease to accrue.
If restructuring is not feasible, based on the debtor`s petition, a decision is made to recognize them as bankrupt and proceed with another mechanism: asset realization.
After the notice of the application`s validity is published, creditors are given two months to submit their claims against the debtor.
For the debt restructuring procedure to be applicable to an individual, they must satisfy the following criteria:
- Possess a stable income.
- Have no outstanding convictions for economic crimes.
- Not have been declared bankrupt within the past eight years.
“The debt restructuring plan forms the core of the procedure`s execution. It can be proposed by the debtor, a creditor, or an authorized body. The draft plan is submitted to the financial manager within ten days after the creditors` claims register is compiled. Should no plan be proposed, the creditors` meeting will determine whether to declare the citizen bankrupt and proceed with asset realization,” clarified the lawyer.
Asset Realization (Bankruptcy Estate)
If debt restructuring is not possible, bankruptcy culminates in the sale of the individual`s assets through auction and proportional payment to all creditors, adhering to established priority. The court issues a corresponding decision, after which the financial manager notifies creditors within 15 days, inviting them to submit their claims.
“The bankruptcy estate encompasses all property that can be subject to foreclosure, along with wages and other income sources. If the debtor jointly owns property with others, such as a spouse, only their specific share is subject to seizure. The financial manager conducts the inventory and appraisal of the property, subsequently submitting a report to the court detailing the procedure`s order, conditions, and timelines. This report also specifies the initial sale price of the property,” noted Lilia Shikh.
However, foreclosure cannot be applied to:
- The debtor`s sole residential property (unless it is mortgaged).
- Basic household items, personal effects, and professional tools (within reasonable limits).
- Food products and money up to the subsistence minimum.
- Pets, livestock, and their feed.
- State awards, honorary, and commemorative signs.
The State Duma has adopted legislation ensuring that in cases of individual bankruptcy, the sole mortgaged dwelling is not seized in favor of creditors. An insolvent borrower with a mortgage is permitted to enter into an amicable settlement with the mortgage-lending bank. Following this, they will repay the mortgage for the housing in accordance with the terms specified in the agreement.
The sale of the bankruptcy estate occurs through auctions, which are allocated two months to be conducted, after which debts are settled. If the funds generated are insufficient, the bankrupt individual is released from their remaining obligations to creditors.
Nonetheless, the law also outlines specific instances where the discharge of individual debts (such as those from loans, borrowings, or taxes) is not permitted:
- Alimony debts.
- Compensation for harm caused to life or health.
- Debts related to salary and severance pay.
- Subsidized liability (e.g., for corporate management).
The entire process of liquidating an individual`s property should not exceed six months.
Amicable Settlement
An amicable settlement is a court-approved document that concludes bankruptcy proceedings due to a compromise reached between the debtor and creditors. This agreement can be concluded at any stage of the bankruptcy process.
“Such a document suspends the actions of the insolvency practitioner; the citizen then commences debt repayment, and the court proceedings are terminated,” explained the lawyer.
The amicable settlement covers all creditors` claims that were included in the register. Should disagreements arise between the parties concerning the agreement`s terms, they are resolved by the court.
If the terms of the amicable settlement are breached, the bankruptcy proceedings are reinstated, and the debtor`s property becomes subject to realization through auction.
“Many lawyers may not highlight the option of an amicable settlement with the bank. For instance, if a client finds the debt restructuring schedule unsuitable, a skilled lawyer can help them establish such an agreement through the court. This enables a client with a mortgage to retain their pledged property and make payments at a manageable pace,” noted Daria Bortsova, Executive Director of “KreditaNet.”
Reasons for Court Refusal
“The court may reject an application if it contains significant errors (it must adhere to the Arbitration Procedure Code, Articles 37 and 213.3 of the Federal Law `On Bankruptcy`), if the submitted documents are incomplete, or if the payment receipt is missing. Furthermore, refusal occurs if the citizen fails to prove their insolvency, or when an ongoing dispute between the debtor and creditors requires resolution through separate litigation,” explained Lilia Shikh.
When an Individual is Declared Bankrupt
Following the submission of the application and all necessary documents confirming an irrecoverable debt, the court issues a decision formally declaring the individual bankrupt.
Cost of Judicial Bankruptcy
“The cost of a `turnkey` personal bankruptcy service typically ranges from 80,000 to 170,000 rubles. This comprehensive fee covers all expenses for the financial manager`s services, state duties, costs for publishing bankruptcy announcements, and legal fees,” noted Lilia Shikh.
Simplified Out-of-Court Personal Bankruptcy
“On September 1, 2020, the law introducing free out-of-court bankruptcy for citizens came into effect. This made it possible to discharge debt without cost and without court involvement via the MFC,” explained Ekaterina Kuznetsova, a lawyer and expert in personal and individual entrepreneur bankruptcy.
Simplified bankruptcy is available provided the following conditions are met:
- The total debt amount is between 50,000 and 500,000 rubles.
- Enforcement proceedings initiated against the debtor by the Federal Bailiff Service have been terminated due to a documented lack of property for seizure.
- No new enforcement proceedings have been initiated against the debtor after the termination of previous ones.
- The debtor has no other active enforcement proceedings.
How to File for Free Bankruptcy via MFC
“An application for out-of-court bankruptcy is submitted by the citizen at their place of residence or stay to the Multifunctional Center for Public and Municipal Services. After six months from the date of publication, the citizen is released from all further obligations to the creditors specified in their application,” noted Ekaterina Kuznetsova.
Documents required for free filing via MFC:
- Application for recognition as a bankrupt in an out-of-court procedure.
- A comprehensive list of all creditors and the precise amounts owed to each.
- Identification document.
- SNILS (Pension Insurance Policy Number).
It is crucial to accurately list all creditors and debt amounts in the application, as creditors or obligations not specified will not be covered by the out-of-court bankruptcy procedure; consequently, the individual will not be discharged from such debts. Accurate reporting of taxes and fees is also essential.
Consequences of Personal Bankruptcy
“For five years, a citizen declared bankrupt is prohibited from incurring new obligations under credit or loan agreements without explicitly disclosing their bankruptcy status. They are also barred from re-applying for bankruptcy. Furthermore, they cannot hold management positions in insurance organizations, non-state pension funds, investment fund management companies, unit investment funds, or microfinance companies, nor can they participate in the management of such entities in any other capacity,” explained Ekaterina Kuznetsova.
Additionally, for three years, the citizen is not permitted to hold management positions in any legal entity, and for ten years, they are restricted from holding management positions in credit organizations or engaging in their management in any other way.
Salary and Pension During Bankruptcy
“During the bankruptcy procedure, a bankruptcy estate is formed, comprising property and monetary funds that can partially satisfy creditors` claims. Salary and pension are included in this estate, but it is crucial to understand that the debtor is allowed to retain funds equivalent to the subsistence minimum for themselves and their family members,” explained Ekaterina Kuznetsova.
Restrictions During and After Bankruptcy Proceedings
Prior to initiating bankruptcy proceedings, individuals must refrain from engaging in transactions that could later be challenged by the financial manager during the bankruptcy process, such as fictitious transactions.
Moreover, during the bankruptcy procedure, all rights concerning the debtor`s property and the bankruptcy estate are exercised exclusively by the financial manager and cannot be undertaken by the citizen personally. Any transactions made by the citizen personally without the financial manager`s involvement are deemed void.
Pros and Cons of Judicial Bankruptcy
“The primary advantage of judicial bankruptcy is the ability to discharge debts when an individual faces severe financial hardship. However, there are exceptions: debts related to alimony, salary and severance payments, subsidiary liability, and compensation for harm to life and health are not eligible for discharge,” noted Ekaterina Kuznetsova.
Other advantages include:
- Cessation of interest accrual and penalties on debts.
- Protection from collection agencies and bailiffs.
- Removal of travel bans and property freezes.
- The opportunity to make a fresh financial start.
According to the specialist, the disadvantages of bankruptcy are:
- The substantial cost of the procedure.
- The complexity and extended duration of the process.
- The requirement to surrender most property (excluding legally protected assets).
- A negative impact on credit history and future borrowing capacity.
- Certain temporary restrictions on holding management positions.
How to Choose a Financial Manager
“When selecting an arbitration manager, one should consider their experience, professional track record, and client reviews. The official website of the `Unified Federal Register of Bankruptcy Information` allows one to review active financial managers and the volume of cases they handle. Additionally, it is advisable to consult with bankruptcy lawyers, as they frequently collaborate with financial managers and can recommend a competent and seasoned specialist,” explained Ekaterina Kuznetsova.
Changes in 2025
As of now, there have been no fundamental changes to the personal bankruptcy procedure scheduled for 2025. However, from September 1 of this year, the mechanism for obtaining information during MFC bankruptcy will be refined: the Social Fund of Russia (SFR) will now have the authority to request banking information for the out-of-court personal bankruptcy procedure. This process will unfold as follows:
- The SFR will send direct requests to banks for details regarding the debtor`s accounts and balances.
- Banks will be obligated to furnish the requested information within a specified timeframe.
- This adjustment aims to streamline and expedite the verification process for out-of-court bankruptcy applications.
