Personal Insolvency and Implications for Credit Institutions

Digest Finance. 2017. Vol. 22. No. 4. P. 413–424.

Yusupova O.

mportance Having been adopted in 2015, personal insolvency regulations significantly influenced the supply structure in the lending market, and dramatically changed banks' approaches to dealing with difficult customers, especially in consumer lending. Objectives The research analyzes strengths and weaknesses credit institutions face as a result of the enforcement of personal insolvency regulations, nature of changes in banks and debtors' interaction models, and transforms principles of lending policies in line with existing economic realities. Methods I apply methods of logic, economic analysis to study banking risks associated with insolvency of individual borrowers. Results I fundamentally evaluate principles of personal bankruptcy laws so as to determine possible banking risks at each stage of bankruptcy proceedings. Having analyzed cause-and-effect perspectives, I identified procedural and economic difference of debt restructuring processes and sale of debtors' property that took place as part of bankruptcy proceedings. Conclusions and Relevance The adoption of bankruptcy regulations will make banks be more tolerable to troubled borrowers seeking for debt restructuring. Banks seldom exercise their entitlement for suing bankrupt debtors, since this reduces interest, other income and the amount to be repaid. The analysis unravels the personal insolvency procedure in terms of vulnerable aspects and allows to understand advantages banks may enjoy if they deal with borrowers without initiating bankruptcy litigations.

Keywords: citizen, restructuring, bankruptcy, bank risk, банковский риск, банкротство граждан, реструктуризация долгов гражданина