What happens if you don’t pay loans and microloans?

The country is in debt

14.6% of Russian borrowers, that’s more than 8.5 million people, have an increased credit burden (more than 50% of income is spent on monthly loan payments), estimated Deputy General Director of the United Credit Bureau Nikolai Myasnikov in an interview with the Federal Business Journal in September.
A World Bank (WB) study showed that in 2021, among bank borrowers, 9% of families have overdue debt, 10% were forced to restructure or extend the loan or received a loan refusal from the bank, 14% are experiencing difficulties with interest payments.

In general, 55% of Russian borrowers are not protected or vulnerable due to their excessive debt exposure, these are the conclusions of World Bank experts. 29% of respondents, based on their financial situation, would not be worth providing a loan right now.

About 42.3% of borrowers in Russia as of May 2021 had two loans or more, and almost 20% of bank clients simultaneously serviced at least three loans, according to a study by the Equifax credit history bureau.

When is it time to start worrying?

There are two ways to assess the criticality of your debt load.
Simple - read the following six statements. If at least three of them are about you, then you are in the danger zone and have lost control of your finances. So you:

Grounds for going to court

Analyzing the above, we can identify several reasons why the bank is highly likely to file a claim in court for non-payment of a loan in 2021. Among them:

missing several regular loan payments, usually two or three;
inability to contact the borrower in order to resolve the issue without litigation;
the debt is an impressive amount, comparable to or exceeding the amount of the upcoming legal costs;
the presence of collateral for the loan in the form of collateral or surety agreements, which increases the bank’s chances not only of a positive court decision, but also of actual repayment of the debt.

What to do?

Step one is preparation. Write down the data on all debts, in the form of a table:

type of loan (mortgage, car loan, cash loan, loan for goods, credit card, microloan, etc.);
amount of debt;
interest rate (in annual terms), the easiest way to view it is in the contract or in the personal account of the financial institution;
maturity;
monthly payment amount;
payment date.

Step two is finding sources to pay off your debt.
There are few of them: either increase income or reduce expenses. Both directions do not look particularly promising. If the per capita income in a household, like many in Russia, is in the range of 15–20 thousand rubles per month, then you won’t save much. For example, the typical advice to overburdened Americans “eat at home, not in restaurants and cafes” looks like a mockery in Russian conditions.

However, people in difficult credit situations don’t have much choice. As they say in financial manuals, if you find yourself in a financial hole, at least stop digging. It is worth studying the budget, your assets and finding opportunities to allocate more funds to pay off debt.

The most difficult thing is with income growth. The situation in the economy is not the same, and the list of recommendations here is usually short: working part-time in the evenings and weekends, using a hobby as a source of income, looking for a higher-paying job. You won't speed up.

Therefore, most likely, you will have to find the necessary funds by changing your habits and looking for unproductive expenses. At the same time, of course, the main thing is not to overdo it. A person who both works and “lives” on a smartphone should not buy the cheapest push-button phone and a tariff without the Internet. But this may well become a saving for a person who uses the phone the old fashioned way - to communicate by voice.

There are long lists of recommendations on what you can save on. Some will seem funny and unrealistic, others may well help you get additional cash. Selling unnecessary things through classifieds like Avito or Yula, searching for underused subscriptions to services, barter, correct use of discount services in grocery stores - everything can come in handy.

Step four is prioritization. Which loan should I pay off first? Is it better to shorten the term or payment? Here are several methods that help systematize the loan repayment process. Naturally, each of them has pros and cons, it’s up to you to choose.

Avalanche method

We distribute loans in descending order of interest rate. It is worth paying off the most expensive debts at an accelerated pace, that is, those with the highest interest rates. This method also applies to credit cards. The interest rate on them is usually higher than on cash loans and even more so on mortgage loans. In this case, there is a so-called credit card trap. If you make only the minimum payment on them, then even with a significant amount of debt you can feel quite comfortable.

Snowball method

We rank our loans by size. We put out the smallest one first. This method is easier purely psychologically: you will see that there are fewer debts. Each repaid loan will give you a feeling of relief.

Snowflake method

A method for those who do not have the financial resources to regularly repay at least one loan early. You now spend any unplanned income (bonus, cash gift, debt returned to you) on an additional loan installment. Small early payments are better than nothing. Moreover, unplanned income was not included in the budget anyway.

Snowdrift method

If the situation is difficult and you cannot pay all your debts on time, then you can try to contact the bank for consolidation and combine all the loans. This method is the latest to be used, because refinancing from a bank usually greatly increases interest costs.

How to get out of debt wisely - legal advice

If you have accumulated large loan debts that you are unable to pay off on time and in full, there are several options for solving problems. Moreover, any of them begins with drawing up a plan.

Carefully analyze: what debts you have, in what volume and for what obligations, what is your financial condition and prospects for returning to a normal payment schedule. You can do this yourself or contact a lawyer or financial advisor.

In our practice, we note that most clients do not know that there are legal ways to get rid of debts until they are advised to contact a law firm.

In addition, it is worth consulting with specialists even if a person approaches his problem in good faith. For example, a common mistake is to partially contribute the amount of the next loan payment. The borrower sincerely thinks that as long as he pays at least something, the bank will not take action to collect the overdue debt. In fact, this will not protect you from penalties. This is how situations arise when the debt grows like a snowball, despite the fact that a person is trying with all his might to pay at least something. Lawyers help analyze the entire portfolio and create a reasonable, optimal plan from a legal point of view.

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It is important to know that bankruptcy is not the only way out of such a situation. When there are only temporary difficulties with finances, you can divide all debts into high-priority and low-priority.

You need to pay first of all those whose late payment threatens with eviction, power outage, or confiscation of the collateral (if you are not ready to part with it). You can try to negotiate with banks on credit holidays or loan restructuring. Low-priority debts are those whose payment can be deferred. For example, debts to relatives (if you can come to an agreement with them), debts on credit cards (where it is enough to make only the minimum payment for some time).

If, in the foreseeable future, resolution of financial problems is not expected, and the borrower understands that he “cannot handle” all the debts that have arisen, bankruptcy may be the option that will help him.

At what point should you go bankrupt?

Firstly, there are signs of bankruptcy established by law. The law provides for the obligation of a citizen to file a lawsuit to declare him bankrupt if the total amount of debts is more than 500 thousand rubles. At the same time, the citizen is not able to pay any of the loans on time, and cannot agree with creditors on restructuring. In such circumstances, his creditors have the same right. That is, it is not the citizen, but his creditors who can sue. The law has wording that this must happen “no later than thirty working days from the day he learned or should have known about it.” In practice, of course, citizens submit applications later.

Secondly, if the debts are less than 500 thousand rubles, you can still file for bankruptcy; this is the right of the borrower.

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How to quickly get rid of debts - 7 simple tips

The portrait of a debtor, whose situation is ideal for bankruptcy, looks like this: several credits and/or loans, among which there are no collateral (mortgage, car loan), the total amount of debts is from 250 thousand or more, there is no valuable property in the property (dacha, car, second apartment), the official income is not much higher than the subsistence level. Age, gender do not matter.

How to go through the bankruptcy procedure

The bankruptcy procedure is lengthy, but quite transparent and understandable. To successfully complete it, you need to comply with all the rules and formalities.

You can do this yourself, although you will still have to hire an arbitration manager. But almost always, people resort to the services of lawyers in order to give them most of the work: to correctly draw up and collect all the documents, not to miss the necessary deadlines, to communicate with creditors, collectors and bailiffs.

The bankruptcy procedure itself takes place in several stages.

To declare yourself bankrupt, you need to collect the necessary package of documents: information about debts, income, property and transactions for 3 years. After this, send the claim to the arbitration court at the place of registration. You also need to find an arbitration manager in advance who will agree to handle your case. The arbitration manager is an independent expert who will conduct the entire procedure, evaluate the positions of creditors and the bankrupt, conduct auctions in the event of the sale of property and prepare reports for the court.

After the court has accepted the claim, a hearing is held to determine the validity of the claim: the court determines whether the case fits the bankruptcy law. If so, one of the procedures is introduced, depending on whether the bankrupt has stable income.

If you have such income, you can pay off a significant part of the debt in 3 years. A debt restructuring procedure is being introduced. A schedule is drawn up for the restructuring of all debts for all creditors. Restructuring period is maximum 3 years. It is approved by the court (even if the creditors do not agree with it), and the debtor pays all debts under it. If all debts are repaid according to schedule, the citizen is considered to be in good faith, and the consequences of bankruptcy do not apply to him. If not repaid, a second procedure is introduced.

If there is no income or they are insignificant, a procedure for selling the property is introduced. The bankruptcy manager evaluates the bankrupt’s property, and everything that can be sold is sold at auction: a car, a garage, a summer house, valuables, expensive household appliances. All income, minus the cost of living, goes to the bankruptcy estate. At the end of the procedure, the proceeds are distributed among creditors. Also at this stage, the manager analyzes the behavior of the bankrupt and assesses his integrity. If the court finds the bankrupt to be in good faith, the remaining debt is written off. If not, the remainder of the debt remains, enforcement proceedings are opened and the case is transferred to the bailiffs.

According to our estimates, now 95% of property sales end in writing off the remaining debt. 5% of cases are closed without being written off - most often due to a lack of funds to conduct the procedure or due to the manager’s refusal to handle the case.

Small business history

Oksana Ilyina 5 years ago took out a loan for her small business - selling cosmetics. Following this, several more banks offered loans to the girl, and she also took them.

A year later, the individual entrepreneur started having problems. In the crisis year of 2014, sales volumes fell 3 times. Then several more events occurred that changed the family's financial situation. Oksana gave birth to her second child, and it became more difficult for her to devote time to work: the business had to be closed, as it brought only losses. A year later, my husband was left without a job, and it became difficult to pay off loans.

Oksana contacted the banks, told about her situation and asked to review the terms of the contracts: to reduce interest or the amount of monthly payments. But credit institutions did not cooperate. On the contrary, they began calling regularly with reminders and demands to pay overdue amounts.

“At that moment I simply didn’t know what to do and how to get out of this impasse,” says the girl. “I didn’t even think about turning to lawyers until a friend advised me to do so.” I was told that I had a classic situation. Loans in the amount of about 3 million rubles, loss of income, lack of valuable property. We sold our only car so that we would have something to live on during a period when there was no income at all. Only the three-room apartment in which we lived remained in the property. I couldn't find a permanent job because my four-year-old child was sick, and employers couldn't put up with it. The husband got a temporary job with an unstable income.”

Now, in the case of Oksana Ilyina, the court has already made a decision to declare her bankrupt. The case is at the stage of property sale. At the same time, in fact, everything comes down to documentary work, because the family has no valuable property, except for the only home.

During his work, the arbitration manager has already conducted a financial analysis, including an analysis of the debtor’s transactions over the past three years, and also compiled a register of creditors. Now a progress report is being prepared for the court and creditors.

The last stage will be consideration of the report in court, after which a ruling will be made to complete the bankruptcy procedure and release the debtor from further fulfillment of creditors' claims.

Advice for debtors from StopDolg

1. Get rid of guilt. Do not despair and know: not only the bank, but also the borrower has rights. You are not waiving your debt, but simply unable to pay the loan. For such cases, there are legal ways out of the situation, and you simply must take advantage of them. The main thing is to know that there are ways out of the situation. You will not be put in prison, you will not be thrown out onto the street, and your children will not be taken away. Don’t be afraid to consult, look for options, and stand up for your rights.

2. Don't be afraid of debt collectors and courts. The court is a place where you can defend your rights, and debt collectors are employees who are obliged to act within the law. If they break the law, they can be prosecuted. Demand to give your name and position, record conversations, contact the police.

3. Do not take out new loans in order to pay off old ones. Try not to take loans from microfinance organizations, or repay them as soon as possible and in full. Do not repay payments under loan agreements in part unless you have agreed on this with the bank: this will not prevent penalties due to late payments.

4. Remember that, besides bankruptcy, there are other legal ways to solve debt problems. Contact a lawyer as soon as you realize that you are unable to pay on time on at least one of your loans. Believe me, the cost of consultation or legal assistance will definitely pay off. The sooner you seek help, the more options you will have. If the bank has filed a lawsuit against you and enforcement proceedings have already been initiated (the case has been transferred to the bailiffs), and everything has been done within the framework of the law (the bank has not inflated the amount of interest and fines; it notified you about the claim in a timely manner), lawyers will not be able to help much. .

What about refinancing?

The Central Bank continues to reduce the key rate, causing a reduction in interest rates, including on loans. But refinancing to a new, lower rate is only possible for a long-term secured loan, that is, a mortgage. Targeted refinancing of a consumer loan, credit card or car loan is not practiced by banks. You can try to refinance a credit card by ordering another one that provides for a balance transfer (there are such offers on the market now), but whether the rate will be lower, given the critical situation of the borrower, is a big question.

The bank filed a lawsuit: what next?

Going to court usually occurs six months to a year after the borrower stops paying the loan. However, in some cases this period may be significantly shorter (a month or two) or significantly longer (several years). More often, the bank goes to court rather than the collection agency, since in most cases it is the bank that retains the right to claim the loan. However, a lawsuit is an additional cost for the bank, and if we are talking about small amounts, then there may not be a trial. The question of what amount is considered “small” depends on the specific bank and region of Russia. For example, in Moscow there are practically no lawsuits for debts of less than 50 thousand rubles.

First, the bank applies to the magistrate's court, which issues a court order without hearing the borrower. There is no need to worry about this, since you can simply write an application to cancel the court order and then a new application will be filed in the district court. It is worth preparing for the fact that the trial may last many months. If you present the legal facts regarding the inability to pay the loan, then the court can significantly reduce the amount of debt. If you declare yourself bankrupt and do not pay the loan, then by court decision all the property will be confiscated and sold in favor of the creditor.

The Borrower must proceed as follows:

Appear at every court hearing.
Prepare documents about the deterioration of your financial situation due to loss of job, transfer to a lower-paid position, prolonged illness or, for example, the birth of a child, which requires additional costs. If you wrote an application for restructuring, but the bank did not accommodate you, then this will be to your advantage.
You should also contact a lawyer to prepare a counterclaim against the bank. It is necessary to obtain a recalculation of interest and other fees that were accrued by the financial institution.

Based on the results of the hearings, the court makes one of the following decisions:

Oblige the debtor to pay the debt in a lump sum (including through the independent sale of property).
Pay off debt with salary deductions over a period of time.
Repay the loan in full, but without penalties or late fees.
Restructure loan
Forcibly collect the debt from the borrower's property.

Within 10 days after receiving the decision, you have the right to challenge it by filing an appeal. It makes sense to do this if you are sure that the court did not take into account significant circumstances (for example, it did not take into account that you got a job and decided to immediately collect the debt at the expense of your car).

Unpopular measures

Don't refuse automatic payments for services. If the expense is on the list of non-reducible expenses, agree to auto payment. However, review this list every three months.
Value your time. This will help you estimate potential income and expenses in days and hours of your life, your work.
Saving should not make life worse and more boring, it should solve problems.
Look for where you can achieve the greatest impact with minimal changes. Start with the largest blocks of expenses. In Russia, this is often food costs.
No savings are too small. There are rules that people no longer adhere to.