On March 3, 2023, the Law of the Republic of Kazakhstan "On Solvency Recovery and Bankruptcy of Citizens of the Republic of Kazakhstan" (hereinafter: Law on Bankruptcy) entered into force. It was signed by the Head of State on December 30, 2022.

The Law on Bankruptcy provides for three types of procedures: extrajudicial/judicial bankruptcy and solvency recovery. 

Prior to filing for bankruptcy, a borrower should first undergo a procedure for settlement or recovery of outstanding obligations under a loan agreement within a period not exceeding 18 months from the date of overdue debt occurrence.

If a borrower failed to repay obligations for all creditors for more than 5 years, then s/he has the right to apply for a simplified bankruptcy procedure without applying the settlement procedure. A debtor, who has been receiving the targeted social assistance (TSA) within 6 months, can apply for application of this procedure without reference to the delay period.

How to settle overdue loans

Since October 1, 2021, Kazakhstan has been legislatively implementing the procedure for settling bad debts of citizens experiencing difficulties in repaying a loan. Pursuant to the procedure, a lender (bank or microfinance organization) is obliged to notify a borrower of a delay within 20 days from the moment of its occurrence. In a notification, lending institutions inform citizens that it is necessary to:

• Make loan payments.
• Pay off an overdue debt, specifying the amount and consequences for a borrower in case of failure to repay.
• Contact a lender regarding a loan restructuring.

In turn, borrowers who have a delay should submit an application to a lending institution for loans and micro loans restructuring within 30 days from the date of delay occurrence. In an application, it is necessary to indicate a reason for delay and offer possible restructuring options, provide supporting documents confirming a decrease in income and inability to pay under obligations. A borrower's application is subject to mandatory acceptance, registration, accounting and consideration by a bank and a microfinance organization. A creditor considers an application within 15 calendar days, and afterwards is obliged to provide a response. In case of a positive response, a bank or a microfinance organization provides a borrower with proposals for changing a loan agreement. In case of a negative response, the reasons for refusal should be substantiated.

It is a borrower who provides a lender with information about his/her financial and social situation, s/he should confirm the fact of a decrease or lack of income that lead to failure to fully fulfill obligations.  If the requested documents are not attached to an application, a lending institution has the right to leave a borrower's application without consideration.

What is the restructuring?

It involves change in the terms of the existing loan for those borrowers who find themselves in a difficult financial situation. A bank or a microfinance organization may offer the following to a borrower:

• change that involves decrease in the interest rate under a loan agreement;
• change the currency of balance amount of principal debt under a loan to the national currency if it was issued in a foreign currency;
• deferral of payment on the principal debt and (or) remuneration;
• change of the method of debt repayment or the order of debt repayment, including repayment of the principal debt in priority order;
• change of loan term;
• writing off overdue principal debt and (or) remuneration, cancellation of penalties (fines), commissions and other payments related to servicing a bank loan;
• independent sale by a mortgagor of immovable property that is the subject of a mortgage;
• submission of compensation in return for fulfillment of obligation under a loan agreement by transferring the collateral to a bank (an organization engaged in certain types of banking operations);
• sale of real estate, which is the subject of a mortgage, with transfer of obligation under a loan agreement to a buyer.

Amendments to the terms of an agreement are made within 15 calendar days from the date of such a decision by a bank or a microfinance organization.

If it was not possible to reach an agreement with a lender on the terms of a loan restructuring, a borrower has the right to apply to the Agency of the Republic of Kazakhstan for Regulation and Development of the Financial Market or the State Revenue Committee under the Ministry of Finance of the Republic of Kazakhstan for bankruptcy proceedings. In this case, it is necessary to confirm that a borrower made an appeal to a bank or a microfinance organization and there was a failure to reach a mutually acceptable solution.