How will the Law Concerning Individual Bankruptcy Work?  Expert explains details and options for debt write-offs.

Famous Economist Almas Chukin had a considerate look into the new individual bankruptcy law.  In doing so, he did not seek for those guilty (Banks Rob the Poor or Fools Taking Numerous Loans).  In a sober mind, he assessed all options and opportunities. And in doing so, he highlighted that with the prudent approach, a credit is, still, an economic instrument with a positive charge.

Details below:

“ One million individuals in Kazakhstan found themselves in quandary.  By new Law, soon those citizens shall be capable to use the following three options.

Extrajudicial Bankruptcy

That option is available to those, owing less than KZT 5.5 million.  Through eGov they can submit applications in a special format.  Governmental institutions will check applicants’ properties.  Creditors also may check applicants, and, should no arguments contra be found, those applicants shall be acknowledged bankrupt and their debts shall be annulled.  Creditors shall lose rights of debt claim.

To be eligible to resort to the above procedure of voluntary announcement of self a bankrupt, a debtor must be a person failing to pay-out debts in the period of 12 months preceding the bankruptcy procedure and possessing no property. Alternatively, sufficient shall the fact of failed pay-outs for the period of 5 years preceding the bankruptcy procedure.

Ministry of Finance reports that there are 1,040,000 such individuals in Kazakhstan.  After expiration of five years, following the bankruptcy procedure, such citizens shall become able to start new lives, provided that in the course of the said five years, they shall not be eligible to apply for new credits and loans.

Creditor and Debtor’s Agreement

In addition to the above procedure, the Law clearly discusses options for those, whose debts are in excess to KZT 5 million.  The Solvency Restoration Procedure is brand new and of utmost importance.  By that Procedure, a creditor and a debtor may agree on the debt pay-out sequence in the period of 5 years.  A creditor may make available to debtor various discounts and indulgencies.  A new pay-out schedule shall be made by the sides thereto. 

But the imperative novelty is the flexibility to be enjoyed during operations with property.  For example, a person has a big cottage pledged and that person agrees to relocate to a smaller apartment.  A bank may choose to join that process, clear the pledge, issue pledge coverage for that smaller apartment and take the difference to account it as the debt pay-out.  Or a person may change a Land Cruiser to a Daewoo Nexia.  Thus, a debt shall be discharged and a person shall not be acknowledged bankrupt. 

Debt Pay-Out Through Court

The judicial bankruptcy procedure (40 000 persons) was clarified in the new Law, and the novelty is in the fact that a debtor shall be allowed to actively take part in the sales of property.  The most important provision is that if the cost of sold property is not sufficient to cover the debt remains, the latter shall, still, be deemed cleared. 

At the same time, there is a questionable “tiny little IED” planted in that procedure.  That is court’s right of contestation of sales of property within the period of 3 years prior to the procedure.  There are situations in life, when opportunistic debtors perform false sales of their properties to trusted accomplices for lowered prices.  The new procedure provides options for re-addressing such transactions and terminating them.  And what if there was an urgent sale and the buyer was a real one?  Because of that risk, the cost of such apartments, for example, will be lower than actual and that will be of additional detriment to the debtors. 

Awful End or Endless Awfulness?

At present, those realistically and objectively in trouble remain in trouble.  Their bank accounts are under arrests, their cards are blocked and they are not in the position to legally find employment, because employers are not willing to pay in cash or go Banzai, when approached with stories about problems with banks.  If people do not work officially, they do not pay their medical insurance coverage and thus are not positioned to enjoy free health services, because they do not have legal patient dossiers.  Internet commerce is not an option for them either, because they do not have payment cards.  That implies being pushed back into the dark ages of cash and semi-legal employment schemes. 

How Much Do We Owe?

Median debt (not average, but typical) would total some KZT 600 thousand.  Out of 9 million officially employed citizens of Kazakhstan, 7 million pay-out credits and loans.  Out of those 7, 1 million are not capable of paying-out their debts.  So, we are looking at some KZT 600 billion to KZT 1 trillion to be written-off.  For banks, that will be an impact, of course, but they will survive. 

– Probably, the re-commissioning of those one million individuals into the normal economic life will be of greater use, than those endless “fines and penalties”.

– Probably, those individuals will learn a life lesson and, upon expiration of those 5 years, shall be more thoughtful before making new borrowings.

– Probably, some 20 thousand of not the most fair debtors will think that Kazakhstan entered the age of freebee, and that is quite a natural side-effect.  But the Credit Bureau has a good memory and shall never forget their credentials. 

Still, Credits are Good

As of today, a typical consumer credit totals some KZT 75 thousand.  Banks approve credits to only 20% of applicants.   That is sad and needs to be worked on.  At the same time, it must be understood, that unthoughtful and formalistic denials of credit applications bring more harm, than benefit.  When we limit credit availability in the competitive free market, we force people to seek moneys from pawn-shops.  We create obstacles on the way of liberation from poverty.  That is sad schooling, a trail of trials and fails.  Only 20 years ago, a credit given to an individual was a rarity, today we will hardly find a person without credits.

Some facts:

– As of November 2022, the Kazakh credit portfolio totaled KZT 22.3 trillion with the annual growth at 25%.

– Out of above amount, KZT 14 trillion – credits available to individuals.  The lion’s share of that amount is for consumer needs, and the hypothec holds the second place.  In November, the average rate of return on credits given to non-banking legal entities grew to the level of 18.4%, while those accrued on credits given to individuals dropped down from 17.3% to 15.3%.  The reduction of the rates of return accrued on individual credits facilitated the reduction of rates accrued on consumer credits, because banks took some marketing action.