Individual Bankruptcy: Dispelling Common Myths
Table of Contents
Top 10 myths that trap debtors, debunked point by point
Myth 1: All your assets will be seized during bankruptcy.
False. In fact, the law (Article 446 of the Civil Procedure Code of the Russian Federation) protects certain assets from seizure. The following cannot be confiscated:
- your only home and the land plot beneath it (provided the dwelling is not mortgaged)
- personal belongings (with the exception of luxury items)
- property essential for professional activity
- food and funds up to the subsistence minimum
- transportation required for health reasons
- alimony, social pensions, and benefits
Important note: Federal Law No. 298, effective August 8, 2024, allows individuals to retain mortgaged housing during bankruptcy — provided certain conditions are met.
Myth 2: You cannot travel abroad after or during bankruptcy proceedings.
False. That's not the case. Bankruptcy does not restrict a citizen's freedom of movement. On the contrary, after a court ruling declaring an individual bankrupt, travel restrictions abroad may be lifted.
The court may restrict foreign travel only in exceptional cases — if there are suspicions of dishonest debtor behavior. In practice, such situations are extremely rare.
Myth 3: Bankruptcy revokes your right to work or hinders employment.
True. Bankruptcy is not a reason for dismissal or refusal of employment. According to Article 64 of the Labor Code of the Russian Federation, such a refusal can be appealed in court. However, there are restrictions (Article 213.30 of Federal Law No. 127-FZ "On Insolvency (Bankruptcy)"):
- within 3 years, you cannot hold management positions in legal entities
- within 5 years — in insurance organizations, pension and investment funds, and microfinance organizations (MFIs)
- within 10 years — in credit organizations
- within 5 years, you are prohibited from registering as an individual entrepreneur if you underwent bankruptcy proceedings as an individual entrepreneur
Myth 4: You cannot get loans after bankruptcy
True. The law does not prohibit a bankrupt person from applying for new loans. However, there's an important nuance: within 5 years after the completion of bankruptcy proceedings, when applying for a loan, you must inform the bank about your bankrupt status.
The decision to grant a loan remains at the bank's discretion, as it evaluates income, credit history, and other factors.
Myth 5: Bankruptcy permanently damages your credit history
True. Information about bankruptcy is stored in your credit history for 7 years. However, your credit history can be gradually restored. To do this, simply take out small loans and repay them on time.
Myth 6: Relatives or spouses will pay the bankrupt's debts
True. Relatives are not liable for the bankrupt's debts unless they acted as guarantors or co-borrowers. Heirs are liable for the debts of a deceased bankrupt only within the value of the inherited property.
Myth 7: Bankruptcy revokes pension rights
Fact. Pensions are among the payments that cannot be fully seized during bankruptcy proceedings. The debtor is guaranteed to retain a living wage, and after the procedure is completed, the pension is paid in full.
Myth 8: All transactions from the last 3 years will be challenged
Fact. Only suspicious transactions that may have been aimed at evading debt payments are challenged:
- selling property at an undervalued price
- gifting real estate to relatives during insolvency
- transferring money to third-party accounts without a business purpose
Myth 9: Bankruptcy can restrict or revoke parental rights
Fact. Bankruptcy is not a basis for revoking or restricting parental rights. Children cannot be removed from their family due to a parent's financial problems.
Myth 10: Bankruptcy proceedings are very expensive
Fact. The procedure does indeed entail certain costs: state fees, financial manager services, registry publications, etc., must be paid. However, these costs are often incomparable to the amount of debt that will be written off as a result of completing the procedure.
Bankruptcy as a legal mechanism for debtor protection — key takeaways.
Myths about bankruptcy create unwarranted fear of a procedure that, in some cases, can be the only legal way to resolve debt problems. Before making a decision, it's important to get legal advice — a lawyer will help assess all risks and consequences based on your specific situation.
If you still have questions about individual bankruptcy, C Cases lawyers are ready to answer them all. Protect your peace of mind and finances — make decisions based on reliable information!