Bankruptcy Law in Russia Leaves Private Debtors Naked

As consumer lending, formation of credit bureaus and credit histories are progressing in Russia, a strong bankruptcy system seems to be the missing piece of the jigsaw.

Suspicion that bankruptcy is simply an excuse for debtors to avoid their obligations is slowly giving way to understanding the role of insolvency in a market economy, and Russia’s current bankruptcy law says that individuals, along with companies, can go through bankruptcy procedures. However, the practice proves otherwise and personal bankruptcy remains a foreign concept, experts say.

Since 1992, Russia has seen three bankruptcy laws passed, with the latest having gone into effect in 2002. But, according to Alexei Tolokonnikov, an attorney with Freshfields Bruckhaus Deringer, the legislation is contradictory.

“The new law appears to contradict a number of other laws. Some believe it contradicts the Civil Code,” he said, adding that it has yet to be tested in the courts.

“Individuals as such cannot file for bankruptcy [in Russia],” said Alexander Ivanov, a partner with the MINFIN consulting group. “This means that people who have debts are deprived of the mechanisms that would empower them to solve their problems.”

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