Analysis of current situation and practical experience of mediation between a bank and a debtor

“Bank is a unique establishment which will lend you money only if you prove that you have money”. Mark Twain.

The official website of the National Bank of Ukraine (NBU) informs that as of the August of 2011 the amount of overdue credit debt equals to 83,147 billion UAH. On the 6th of October 2011 a round table took place during which Pavlo Matiyash, executive director of Ukrainian National Mortgage Association informed that approximately one third of the debt amount consisted of problem mortgage loans. Participants of the market point out that real rates of overdue credits exceed the official data. For example bankers say that “hopeless loans comprise approximately 40% (about 317 billion UAH) of all loans in Ukraine”.

The time when a debtor could be sold into slavery is long gone however in modern realities “loan” slavery continues to exist. And sooner or later loan debts will have to be repaid. It is still left to find out terms and grounds for such repayment. We prepared a legal advice on this issue.

As of today there are quite effective settlement methods of problem situations which arise from debt related legal relations. Current practice shows the effectiveness of such issues settlement by means of dialogue between a debtor and a bank.

Some easements of loan burden can be achieved on condition of agreement with the bank about debt restructuring. Latest amendments of legislation represented by the Law of Ukraine “On amendments to some legal acts of Ukraine related to regulation of relations between creditors and consumers of financial services” that was signed by the President on the 13.10.2011 and set limitation of loan related payments burden on family budget. It must not exceed 35% of total family income. From now on banks are prohibited to impose additional penalties (fines) for repayment of loan in advance and sanctions that have already been imposed can be successfully appealed against in court. Along with prolongation of debt repayment term and transfer to lower interest rate it is quite possible to achieve significant economy.

Analysis of firm’s latest practice allows to state that in accordance with the resolution number 172 of the National Bank of Ukraine “On approval of Procedure of reimbursement of hopeless debts for banks of Ukraine at expense of reserve” dated 01.06.2011 banks can write off debts related to payment of interest by means of funds accumulated on reserve accounts after grounded appeal of a debtor. As the result the amount of loan related obligations decreases by the amount of debt that was written off. At the same time the amount of debt that was written off is considered debtor’s income and he gets an obligation to pay tax on such income.

Thus as of today judicial mechanisms of settlement of issues related to overdue debts are ineffective and lawsuits about recognition of loan contracts as void are nothing else but a delay.

Real settlement of situation related to problem debts is based on reasoned dialogue with the bank. Experience of our firm’s experts in the field of mediation between a bank and a debtor proves real chances to write off up to 40% of loan related debts, have one’s debt restructured on terms that are suitable for both a debtor and a creditor, removal of lien on bank’s consent.

However one should remember that position of a debtor must be integral, unambiguous and well grounded. There is only one chance to present such position since if it is altered a bank may think that actions of a debtor are aimed at delaying of debt collection procedure.

This is why choice of strategy is an important step. Development and implementation of the most effective strategy for you is guaranteed by synergy of experience and knowledge of qualified experts.

This material was prepared by lawyers of law firm “Pravova Dopomoga”.

Publication date: 17/11/2011

About author

Name: Volodymyr Gurlov

Position: Partner

Education: National Academy of the Security Service of Ukraine

Knowledge of languages: Russian, Ukrainian, English

Email: [email protected]

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