Good Faith or Not: How Ukrainian Courts Distinguish Honest Debtors from Abusers

The personal insolvency framework in Ukraine was introduced as a mechanism to protect individuals who have found themselves in financial distress through no fault of their own. Its purpose is to give citizens a “second financial chance” — an opportunity to restructure debts, regain solvency, and start anew.

However, as with any legal privilege, this mechanism requires honesty and transparency. Some debtors, unfortunately, view personal insolvency not as a means of rehabilitation, but as a convenient way to evade debt and conceal assets, leaving their creditors empty-handed.

That’s why Ukrainian courts are gradually shaping the concept of “debtor’s good faith”, which has become a core criterion in determining whether a person truly deserves relief under insolvency law.

Honesty as a Precondition for Financial Rehabilitation

Under the Code of Ukraine on Bankruptcy Procedures (CUBP), insolvency proceedings for individuals can only be initiated by the debtor themselves — unlike corporate bankruptcy, where creditors may also petition the court.

This reflects the legislator’s intent to maintain a balance between the interests of debtors and creditors. Creditors retain the right to recover what is owed to them, while debtors gain access to a structured path toward financial recovery. But this balance is only possible if the debtor acts in good faith and cooperates with creditors, the restructuring manager, and the court.

If a debtor submits incomplete or false information in their asset declaration, avoids communication, or withholds financial data, the court has the authority to terminate the proceedings under Article 123(7) of the CUBP.

Thus, it is the court’s responsibility to assess the debtor’s conduct and determine whether they are genuinely seeking rehabilitation — or abusing the process to escape liability.

Judicial Practice: How the Supreme Court Defines “Good Faith”

The jurisprudence surrounding personal insolvency is still developing, but several landmark rulings by the Supreme Court of Ukraine already serve as guiding precedents for legal practitioners.

Key court decisions include:

• Ruling of the Commercial Cassation Court within the Supreme Court, 22 September 2022, Case No. 916/2372/20. The Court emphasized that the debtor’s obligation to provide full and accurate information about their assets and income is not merely formal — it is a substantive requirement central to the entire insolvency process. Incomplete declarations can justify termination of the case.
• Ruling of the Supreme Court, 26 May 2022, Case No. 903/806/20. The Court noted that good faith implies not only the absence of deceit but also a proactive willingness to settle debts. Even if the insolvency administrator does not identify violations, the court must independently verify the accuracy of the debtor’s information.
• Ruling of the Supreme Court, 18 January 2024, Case No. 911/2308/23. Here, the Court confirmed that the discovery of false or incomplete data constitutes grounds for closing insolvency proceedings, even without a creditor’s complaint. The court is obliged to act on its own initiative if it detects signs of bad faith.

Good Faith as a Strategy for Legal Survival

As Supreme Court judge Serhii Zhukov noted during the XIII Conference on Problem Debt Management, the personal insolvency procedure should be seen as a privilege, not an indulgence. “The legislator granted individuals the right to resolve their debts through the courts — but they must behave accordingly, providing full information about their assets and avoiding abuse,” — he emphasized. This statement captures the current judicial approach: a debtor who acts honestly and transparently can rely on the protection of the law; one who manipulates the process risks losing that protection entirely.

Conclusion

The personal insolvency mechanism is more than just a legal procedure — it is a test of trust between the individual and the state. Through its case law, the judiciary is building a culture of financial responsibility and accountability. The debtor’s good faith is no longer a mere formality; it has become the decisive factor in whether insolvency leads to rehabilitation or failure.