Debt restructuring

Debt restructuring involves changing the terms of repayment: a new repayment schedule, reduced instalments, a deferral, or the partial write-off of late payment charges and penalties. The bank does not agree to this out of kindness, but out of self-interest: it is better to receive the money more slowly than not to receive it at all.

But there is one step that almost everyone gets wrong: they agree to a deal without checking the amount of the debt. And this amount often includes items that cannot be recovered — unlawful fees, late payment charges accrued in excess of permitted limits, and interest charged by microfinance organisations that exceeds statutory limits.

First — an audit of the debt. Then — negotiations. Restructuring an inflated amount means voluntarily accepting what a court could have set aside.

+38 095 554-54-24 — legal advice

Three restructuring scenarios

1. Out-of-court settlement

The cheapest option. The creditor and debtor sign a supplementary agreement: a new repayment schedule, reduced instalments, a repayment holiday, and partial write-off of penalties.

What can usually be negotiated: a reduction in late payment charges and penalties (banks are keen to write these off as they won’t receive them anyway), a deferral of the loan principal, and an extension of the term.

What you won’t be able to achieve: write-off of the principal debt without cause. This only happens in the event of bankruptcy or where there are material defects in the contract.

The main pitfall: by signing the agreement, you acknowledge the amount of the debt. If it contains unlawful charges, it will be much more difficult to challenge them after signing.

2. Through the courts — within the scope of the dispute

If the creditor has already filed a claim, the court may reduce the amount of the penalty if it is disproportionately high compared to the creditor’s losses (Article 551 of the Civil Code). This works: courts regularly reduce penalties and fines by a factor of several.

It is also possible to challenge unlawful fees in court, apply the limitation period to part of the claims, and have charges that do not comply with the contract removed.

3. Through personal bankruptcy

This is also a form of restructuring — but a judicial one, involving an insolvency practitioner. The restructuring plan is approved within 120 days of the date proceedings are opened, and the accrual of penalties and fines ceases immediately.

For more details: Bankruptcy of a natural person.

What to check regarding the amount of debt

Before entering into negotiations, we check:

• the limitation period — 3 years for the principal debt, 1 year for late payment interest and penalties (Article 258 of the Civil Code). A significant proportion of old debts are partially ‘in arrears’;
• the amount of late payment interest — contractually agreed, but within the limits of the law;
• the lawfulness of fees — for servicing, for issuing the loan, and the ‘monthly fee’ on the principal amount of the loan. The courts often recognise many of these as unfair terms;
• interest charged by MFOs — this is where the most violations occur: the charging of ‘300 per cent per annum’, which is not provided for in the contract, or the continuation of interest accrual after the contract has expired;
• is the debt legally assigned to debt collectors — and were you notified of the assignment of the claim;
• is the guarantee agreement valid — guarantors are often held liable for debts from which they have long since been released.

Very often, following such an audit, the amount to be ‘negotiated’ is reduced by a third or more.

Debts to MFIs and debt collectors

This is a separate category — and the one most vulnerable to challenge.

Microfinance organisations often charge interest and penalties that go beyond the limits of the law and even beyond the terms of their own contracts. Debt collectors put pressure on people with sums they would be unable to substantiate in court.

Our approach here is as follows: do not agree to a settlement, but verify the figures. It is often more advantageous to take the case to court, where the creditor must prove every hryvnia, than to sign a restructuring agreement for an amount plucked out of thin air.

Illegal actions by debt collectors (threats, calls to relatives, pressure at work) are documented and challenged separately — right up to lodging complaints with the National Bank and the police.

When debt restructuring is not in your best interests

• the debt amount is inflated — contest it first, then negotiate;
• a significant portion of the debt consists of late payment charges and penalties, which the court will reduce anyway;
• the limitation period has expired — why acknowledge something that can no longer be recovered? By signing the agreement, you are effectively reinstating the debt;
• you objectively have no income — in that case, it’s more honest to declare bankruptcy rather than agree to a new repayment plan, which you won’t be able to meet anyway;
• the bank is offering ‘restructuring’ involving the capitalisation of late payment charges and penalties into the principal debt — this increases the debt rather than reducing it.

When you don’t need a solicitor

If the debt is small, the charges are transparent, the bank itself is offering reasonable terms, and you have the income to meet the new repayment plan — go ahead and sign. You don’t need a solicitor here.

You need a solicitor when:

• you do not understand what the total amount consists of;
• the debt is with debt collectors or microfinance organisations;
• late payment charges and penalties make up a significant part of the total amount;
• the creditor has already filed a claim;
• you are a guarantor for someone else’s loan;
• the bank is offering terms that increase the debt;
• You need to understand which is more advantageous: debt restructuring or bankruptcy.

How we work

1. Debt audit — we check every component: principal, interest, late payment charges, fees, and limitation periods.
2. We calculate the actual amount that the creditor could recover in court.
3. We conduct negotiations — from a position of strength, rather than as a supplicant.
4. We draw up an agreement so that you do not have to accept anything unnecessary.
5. We challenge unlawful charges in court if a settlement cannot be reached.
6. We assess the alternative — whether bankruptcy might be more advantageous for you.

Cost of services

Full price list · Personal bankruptcy

Questions and answers (Debt restructuring)

Will part of the debt be written off during restructuring?

Penalties and fines — often yes, banks are happy to write these off. The principal debt is not written off without good reason: for this, there is bankruptcy or contract dispute.

Can late payment charges be reduced through the courts?

Yes. The court has the right to reduce the amount of the penalty if it is excessive in comparison with the creditor’s losses (Article 551 of the Civil Code). Furthermore, a shortened limitation period of one year applies to claims for late payment charges.

Why shouldn’t you sign the agreement straight away?

Because by signing, you acknowledge the amount of the debt. If the agreement contains unlawful fees, an excessive penalty or time-barred claims, it will be much more difficult to challenge them once you have signed.

What should you do about a debt to an MFI?

First, check the charges: that’s where most violations occur. It is often more advantageous to take the case to court, where the creditor will have to prove every hryvnia, rather than agreeing to an arbitrary sum.

Are calls from debt collectors to relatives and at work legal?

No. Such actions breach the law and should be documented for a complaint to be lodged with the National Bank and law enforcement agencies. This also serves as a bargaining chip in negotiations.

Which is more advantageous: debt restructuring or bankruptcy?

It depends on the amount of debt, your income and assets. If you have sufficient income to meet a new repayment plan, then debt restructuring is the way forward. If, objectively speaking, you do not — bankruptcy is a more honest option than a repayment plan you will be unable to fulfil.

Does debt restructuring interrupt the limitation period?

Yes — and this is important. By acknowledging the debt through an agreement, you are effectively restarting the limitation period. If the limitation period has already expired, signing the agreement works against you.

I am a guarantor. Is there anything I can do?

Yes. A guarantee has its own expiry terms, and very often guarantors are held liable for obligations from which they are already legally released. This is checked separately.

What documents should I bring to the consultation?

The loan agreement with all annexes, the repayment schedule, a statement of debt, claims from the creditor or debt collectors, and court documents if a claim has already been filed.

Contacting a solicitor regarding debt restructuring with ‘Svarog’

Send us the loan agreement and the statement of debt — we will check how much of this amount the creditor could realistically recover in court. Very often, following an audit, negotiations begin from a completely different figure.

+38 095 554-54-24 · Kyiv, 7 Khoriva Street (Podil) · Mon–Fri 9.00–18.00