Bankruptcy wave is to hit Russia towards yearend

Bankruptcy wave is to hit Russia towards yearend
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Loan debts are likely to appear even among those who have not missed their payments. Experts urge not to take more loans to pay down other debts - this will only increase the burden.

The pandemic may lead to a marked increase in loan delinquencies. For some people, a payment holiday will be the salvation, and for others - bankruptcy.

"It is impossible to give credit holidays to absolutely everyone without fail. Therefore, the government has compiled a list of industries and organizations that have been most affected by the pandemic. Banks will be required to provide them with credit holidays in the first place. Of course, this list may expand over time. But it would be wrong to think that absolutely everyone will receive such support, " said Garegin Tosunyan, President of the Association of Russian banks.

In turn, the business situation will directly affect people, he believes.

"If the company is unable to pay salaries to their employees, the staff will not be able to cope with their obligations on consumer and mortgage loans, and they will also request a holiday. So by refusing to help businesses, you can worsen the problem and face a large amount of delays," the source believes.

As for citizens, those whose salary has fallen by more than 30% will be able to apply for credit holidays, and the loan taken from the bank falls within the limits set by the authorities.

"Formally, banks are obliged to make such concessions, but this is a very “conditional” obligation. For example, if a person had borrowed from a bank on special terms, then will the credit vacation cancel this benefit or not? This issue is not regulated by law. In general, many issues in the current legislation have not yet been resolved. In such a situation, commercial banks will naturally say: if you insist on a credit holiday, you can lose more than you can gain," Tosunyan said.

"It is clear that until now we have not had such a practice, and the government could not envision absolutely everything. No one could have imagined that several negative factors would come into play at once: health care, oil prices, restrictions on travel, and the shutdown of many businesses.

The measures taken by Federal and regional authorities in this situation are designed to soften the blow to the economy and people. However, if we give everyone - both citizens and businesses - a credit holiday now, then the banks themselves will have to take a holiday. Otherwise, it is not very clear where they should get money for payments on deposits, if they lose the main source of their income - interest on loans? Saving a patient, it is important not to kill him with the drug. It is very dangerous to set up such a system where all obligations to the citizens will be covered by banks," he believes.

The number of bad debt will increase, of course, this is obvious, said Tosunyan. The question is how much. But this question is now unlikely to be answered by anyone. Everything will depend on many factors. In particular, how long the pandemic and self-isolation will last.

"We need to calculate everything and find a reasonable balance between the health of people and the health of the economy. And only then can we talk about how much the volume of overdue loans will grow, and how to solve this problem, " the expert believes.

For many Russians who find themselves in the midst of a pandemic with a debt and no money, the way out may be personal bankruptcy, said the head of the Federal legal company "Stopdolg" Valentina Zebnitskaya.

"The number of bankrupts steadily increased before the coronavirus. This is due to the growth of legal literacy of Russians, who learn that there is a legal opportunity to write off their debts - to declare their own bankruptcy. Even before the start of the pandemic, we predicted that in 2020 there will be 80% more bankrupts in the country than in the past. The new economic reality will, of course, make its own adjustments to our forecasts. We already note a twofold increase in demand for legal advice, and the new defaulters are those citizens who have always paid on time before, " said Zebnitskaya.

According to her, in the fall, the demand for legal services to protect the rights of borrowers will grow at least three times.

"But bankruptcy is a complex and lengthy procedure. Collecting documents for preparing a claim takes about two months, considering the claim in court - one to three months, the duration of the case itself - from 6 to 9 months. As a result, we will see an increase in bankruptcy claims only in late 2020 - early 2021," the expert believes.

So, last year 69 thousand Russians were declared bankrupt, this year there may be 125 thousand of them, and next year - more than 300 thousand.

"A simplified bankruptcy procedure and out-of-court bankruptcy for citizens with a small amount of debt are being actively discussed. If the procedure is made more accessible in 2020, and the law on simplified or out-of-court bankruptcy is adopted, then the growth will be even greater: in the first year after the law enters into force, about 300 thousand citizens will use the new procedure, in addition to those who will follow the regular procedure," the expert believes.

Now the Russians have to honestly and objectively evaluate their financial situation, says Zebnitskaya.

"Sit down and count the amounts of all your obligations: rent, loans, utility bills, food, clothing. Count all your earnings. Evaluate whether you can cover your liabilities. If you are taking a credit holiday, assess whether you will be able to pay the loan in 6 months. If the payment amount exceeds your income, you are effectively bankrupt. No new loan or credit will save you - it will only give you a reprieve before the inevitable. Go to court, it will help you resolve the issue fairly and legally," the expert advises.

If the income still allows you to pay down your financial obligations, it is better to keep financial records of expenses, so that you do not accidentally spend the necessary funds on spontaneous purchases. The first thing is to focus on mortgage and high-interest loans, said Zebnitskaya.

"The main mistake of many debtors is taking new loans to cover the existing debt that is due every month. Please do not take a new loan to partially repay the old one. This only increases your debt load," she warns.

Keep in mind that the Russians are required to file a bankruptcy claim for the amount of debt exceeding 500 thousand rubles. However, they have the right to file such a claim even with a smaller amount of debt.

"We recommend that people with debt of 250 thousand rubles or more consider going through bankruptcy," concluded the expert.

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