The Law establishes mechanisms for resolving the debts of individuals through three procedures: out-of-court bankruptcy, restoration of solvency, and judicial bankruptcy.
All three procedures may be initiated only by the debtor. Accordingly, creditors are not entitled to file a bankruptcy petition against an individual debtor.
1. Out-of-Court Bankruptcy
The out-of-court bankruptcy procedure applies exclusively to debts owed to banks, microfinance organizations (MFOs), and collection agencies.
An individual may apply for out-of-court bankruptcy if the following conditions are met:
* The total amount of debt owed to banks, microfinance organizations, and collection agencies does not exceed KZT 5.5 million (1,600 Monthly Calculation Indices (MCIs)).
* No payments have been made on these obligations for 12 consecutive months as of the date of filing the application.
* The debtor has no registered property, including jointly owned property.
* The debtor has completed the debt settlement procedure with the bank in respect of the overdue debt.
* The debtor has not been declared bankrupt within the previous seven years.
The Law also provides special provisions for:
* Individuals who have received Targeted Social Assistance (TSA) during the preceding six months.
* Individuals whose debts have remained unpaid for more than five years.
The out-of-court bankruptcy procedure is initiated through the e-Government web portal. The applicant's eligibility is verified automatically through an information system by cross-checking data obtained from relevant government authorities and other organizations.
2. Judicial Bankruptcy
Individuals whose debts exceed KZT 5.5 million, as well as individuals with other categories of debt, may apply for judicial bankruptcy.
The purpose of judicial bankruptcy is to satisfy creditors' claims to the maximum extent possible through the realization of the debtor's bankruptcy estate.
If the debtor's only residence has been pledged as collateral, the secured creditor is entitled to foreclose on the property during the judicial bankruptcy proceedings.
If the debtor's only residence has not been pledged as collateral, creditors have no right to claim or seize it.
Any remaining unpaid debt shall be discharged, provided there is no evidence that the debtor acted in bad faith, including by concealing assets or information about assets or by providing false or misleading information.
Judicial bankruptcy proceedings are administered by financial administrators, who may include:
* Administrators authorized to conduct bankruptcy proceedings involving legal entities and individual entrepreneurs.
* Certified professional accountants.
* Legal consultants.
* Auditors.
Recognizing that not all debtors are able to pay for the services of a financial administrator, the Law provides that such services shall be funded by the State for socially vulnerable individuals who own no property.
3. Restoration of Solvency
The restoration of solvency procedure enables individuals with a stable source of income to apply to the court for a debt repayment plan with instalments extending for up to five years.
The repayment plan is prepared jointly by the debtor and the financial administrator and must be approved by the court.
The principal advantage of this procedure is that the individual does not acquire the legal status of a bankrupt. Consequently, the legal consequences applicable to bankrupt individuals do not apply.
Legal Consequences of Bankruptcy
Once an individual has been declared bankrupt:
1. The individual is prohibited from obtaining loans or credit for a period of five years, except for microloans issued by pawnshops.
2. The individual may not apply for bankruptcy again until seven years have elapsed.
3. The individual's financial situation will be monitored for three years following the completion of the bankruptcy proceedings.
Debts Not Subject to Discharge
The following obligations are not discharged through bankruptcy:
* Child support (alimony) obligations.
* Compensation for damage caused to another person's life or health.
* Compensation for losses or damages arising from criminal offences.