Fatal Flaws in Financing Personal Bankruptcy: The Curious Case of Russia in Comparative Context

Abstract

The first three years of operation of the new Russian personal bankruptcy procedure reveal a troubling flaw common to such new regimes: While the law on the books suggests a permissive and effective relief delivery procedure, the law in action has seen the vast majority of debtors barred from accessing that relief due to explicit and implicit financing burdens. Those few debtors admitted to the procedure in the first few years have proceeded relatively quickly to a discharge, which is good news, but the bad news of debtors being too cash-poor to seek bankruptcy relief is an ironic fatal flaw. Not only must debtors bear the substantial unofficial market costs of private professional guidance, as well as the official statutory costs of a trustee to administer the case, these trustees are privately regulated in Russia and have frequently simply refused to take on low-value cases, even for debtors able to pay the official fee. Comparative exploration of this problem reveals surprising parallels with system structure, trustee regulation, and debtor-access financing challenges in Europe and North America. Solutions to these problems implemented in Europe, the US, and particularly in Canada may well work for Russia and other countries launching new personal bankruptcy regimes, but these problems and potential solutions need to be carefully considered to avoid setting up such systems for failure.

Keywords: consumer bankruptcy, consumer insolvency, personal insolvency, MSME insolvency, access fees