Insolvency of Individuals During Wartime

The procedure for personal insolvency in Ukraine is gradually ceasing to be an exceptional mechanism reserved for isolated cases. War, loss of income, relocation, foreign currency loans, mobilization, destroyed property, and years of accumulated debt have created an entirely new category of cases in which courts now examine not only the existence of debt itself, but also the debtor’s actual conduct, financial history, and good faith throughout the entire procedure.

For this reason, modern judicial practice in personal insolvency cases is steadily moving away from the purely formal approach under which it was sufficient merely to demonstrate outstanding loans and overdue payments. Today, the central issue is no longer the debt alone, but rather how the individual became insolvent and whether the procedure is being used solely as a mechanism to evade obligations.

This is especially evident in cases where debtors submit incomplete asset declarations or attempt to conceal property through relatives. Judicial practice has effectively developed an approach under which the concept of family members in bankruptcy proceedings is interpreted very broadly. This includes not only persons living with the debtor, but also parents, adult children, former spouses, and other individuals through whom assets may potentially be re-registered.

A notable example is the ruling of the Commercial Cassation Court within the Supreme Court dated September 22, 2021, in case No. 910/6639/20, where the Court effectively endorsed an expanded approach to analyzing the debtor’s family circle when assessing financial condition. The Court proceeded from the principle that insolvency proceedings cannot become a mechanism for concealing assets through formal transfers of property to close relatives.

For attorneys, this means one simple thing: preparing the declaration has long ceased to be a purely technical attachment to the application. In reality, the declaration has become one of the key instruments for assessing the debtor’s good faith. Any inaccuracies, incomplete disclosures, or inconsistencies between the debtor’s lifestyle, income, and declared assets may become grounds for terminating the proceedings even at the restructuring stage.

This approach was ultimately consolidated in the ruling of the Commercial Cassation Court dated May 26, 2022, in case No. 903/806/20. 

The Court expressly stated that the institution of personal insolvency is intended for an honest debtor who openly cooperates with both the court and creditors, rather than for an individual attempting to use the procedure merely as a tool for debt write-off without disclosing their true financial condition.

A separate problem arises in relation to debts evidenced solely by promissory notes or informal loan receipts between individuals. Several years ago, courts often treated such claims rather formally. Today, however, the situation has changed dramatically. Where doubts arise regarding the authenticity of the debt, the mere existence of a signed receipt is no longer sufficient.

This was clearly demonstrated in the Supreme Court ruling dated March 1, 2023, in case No. 902/221/22. The Court went beyond a formal assessment of the document itself and explicitly emphasized the need to verify the reality of the monetary obligation. In other words, the existence of a signed paper alone no longer guarantees automatic recognition of creditor claims.

In practice, this means that creditors may now be required to prove the origin of funds, the actual transfer of money, their financial capacity to provide the loan, and the genuine existence of the lending relationship itself. Otherwise, there is a risk that the court will regard such claims as an attempt to create an artificial creditor in order to influence or control the bankruptcy procedure.

Another major trend in recent years has been the sharp increase in cases involving debtors residing abroad or holding internally displaced person status. It is precisely here that the Bankruptcy Procedures Code of Ukraine begins to reveal its structural gaps.

Formally, the law does not prohibit such individuals from undergoing insolvency proceedings. In practice, however, numerous complications arise regarding property inventory, verification of foreign income, personal participation in hearings, and even jurisdictional issues. The situation is especially complicated where debtors have lived in the European Union for extended periods and receive income abroad, information about which courts often receive solely from the debtor’s own statements.

In this context, the ruling of the Commercial Cassation Court dated August 13, 2025, in case No. 903/901/24 became particularly illustrative.

The Court confirmed that systematic failure of the debtor to appear before the court without valid explanation may serve as grounds for leaving the application without consideration. Importantly, the mere participation of legal counsel does not eliminate the debtor’s obligation to actively participate in the proceedings where questions remain regarding the debtor’s actual financial condition.

At the same time, the war has created entirely new categories of debtors — military personnel, wounded individuals, and persons who have lost employment or physical ability to earn income. In such cases, judicial practice has demonstrated significantly greater flexibility. Courts increasingly permit remote participation, representation through counsel, video conferencing, and consideration of the objective impossibility of physical attendance.

A separate block of issues remains connected to foreign currency loans. Despite repeated attempts by debtors to argue that such obligations lose their foreign currency nature once a court judgment converts them into hryvnia, judicial practice remains consistent: the nature of the foreign currency obligation does not change merely because the debt is enforced in national currency. This position was clearly articulated by the Supreme Court in its ruling dated August 16, 2022, in case No. 926/2987-b/20. The Court expressly held that changing the currency of enforcement does not alter the legal nature of the underlying obligation, meaning that the foreign currency character of the loan remains relevant in insolvency proceedings.

In reality, the war has transformed the institution of personal insolvency from a narrowly specialized legal mechanism into one of the core instruments of financial rehabilitation for individuals who have lost the ability to service pre-war debts under entirely new economic conditions. At the same time, however, the requirements regarding transparency and good faith on the part of the debtor have increased dramatically.

For that reason, personal insolvency today is no longer merely a story about “writing off debts.” It is a process in which the debtor must prove their own good faith at every stage of the proceedings.