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Utility Debts: Threats and Life Hacks

Date of publication: 28 November 2018

Oleksandr Kamsha, Attorney at Law, Insolvency Receiver

Source: ZN.ua

What really threatens the non-payers? Is there a real danger of losing an apartment for debts? How can the debt to service providers be restructured? Is it possible to restructure debts to condominium associations and even to work it out?

Year by year these and many other important issues about utility debts are becoming more and more pressing.
First of all, we should mention the financial formula for collecting debts from the utility service users: in addition to the total debt amount the service provider has a right to charge 3% per annum for the entire period of default, as well as to take into account the inflation index, and to add the court and enforcement fees to such sum. As you understand, the final debt amount is approved by the court within a framework of summary proceedings, – a simplified procedure exists, and the court decision in this case is called a court order. Pursuant to Article 161(1)(3) of the Civil Procedure Code of Ukraine, this decision is adopted by the court if the claim for collection of debts for utility services, telecommunication services, television and radio broadcasting services is filed (as it has been already mentioned, taking into account the inflation index and 3% per annum, accrued by the claimant on the debt amount).

The debtors should be aware that the aforementioned court decision may be taken without parties’ involvement in consideration of the claim! The court order is issued within only five days after the court receives information about the registered residence (stay) address of the debtor (if the debtor is not a sole proprietor). As a result, the debtor receives such an order by mail. This concerns the rights of claimants, namely, the service providers. As we see the law makes it easier for them to handle relationships with malicious non-payers: writ proceedings are the fastest and least costly way to protect the rights of service providers. But consumers have their rights as well, and they should be well aware of them. First of all, the court will refuse to issue a court order if the claimant requests to recover from the debtor any amount calculated outside the limitation period of three years. But the defendants (debtors) must necessarily point out this fact to the court!

The court issued an order for you to recover the debts? You have 15 days to appeal against such decision. After all, the court reviewed the claim filed by the service provider in your absence and might have not taken into account any significant factor – first of all, of course, the grounds for revocation of the order shall be the non-observance of the limitation period. There are a lot of other factors: in each case, a qualified lawyer must be involved since it is well worth it! In case the order is revoked, the service provider will be forced to apply to the court under the general procedure for debt collecting, and the classical litigation implies excessive costs for the claimant, both financial and temporary, which the company lawyers will spend on preparation and participation in the process. Therefore, the current practice is as follows: the service provider does not appeal to the court under the general procedure to collect the amount of debt less than UAH 2 000 (while some companies have even higher threshold). It’s quite simple: the court fees for the claimant will otherwise exceed the claim amount, and it is still doubtful whether it will eventually be recovered at all.

It becomes quite obvious now that the service providers prefer to apply to court under writ proceedings, simultaneously forwarding seething letters to the debtors threatening to evict them, to recover legal costs, etc. However, in fact, the service providers may simply not have enough money to pay the court fees for all debtors, since today it is a rather expensive enjoyment.

In fact, utility companies may simply not have enough money to pay court fees for all debtors, since today it is a quite expensive enjoyment. However, if we are talking about particularly malicious non-payers, whose debts reach five-digit amounts, the claiming company will, most likely, find the money to pay the court fees.

Getting back to the issue of limitation statute. Let us remind that it is three years (it is the period for which many utility companies ask their consumers to keep receipts for the payment of utility services). If the service provider files a claim under general procedure to collect debts outside the three-year limitation period, the debtor must declare the expiration of the limitation period for that part of the debt pertaining to the period beyond the statue of limitation. In this case, the court will be able to satisfy the claim only partially, and to refuse it in the other part (for debts older than three years). But keep in mind that you (or your attorney) are responsible for taking care to separate old debts from the new ones and to challenge them in court: according to Article 267(3) of the Civil Code, the limitation period shall be applied by the court only upon the petition of the party in the dispute filed before the decision is made. Thus, as long as the court does not establish that the creditor’s claims exceed the limitation period, the creditor has the right to demand from the debtor the repayment of the entire debt amount even for a period exceeding three years. Afterwards it will be late — the claimant will address the enforcement service to ensure the execution of the court decision.

How are debts collected under the court decision, which has become legally effective? First of all, the respondent’s assets – money (in any currency whatsoever) stored in banks – are used to repay the debts. The cash found with the debtor is also seized and credited to the corresponding accounts of the bodies of the State Enforcement Service (or private enforcement officers), for which the relevant act is drawn up. In the absence of money and other valuables, the collection takes place at the expense of valuable movable property, for example, a car, expensive home appliances, etc. The debtor has the right to offer something from his/her property — any specific items to be sold in the first place. But the final decision is still made by the enforcement officers, since they are interested in the most liquid things that can be easily and quickly sold to get as much money as possible.

And the main horror — eviction from the apartment. Yes, that is possible, but it’s not as easy as your creditors may try to present. The Law on Enforcement Proceedings indeed provides for the seizure of real property (housing), but only in exceptional cases of malicious non-payment of debts. Specifically, the eviction of debtor from his/her housing may only be demanded if the amount to be recovered under enforcement proceeding exceeds 20 minimum wages and not otherwise. In all other cases, the enforcement officer is obliged to take measures to enforce the decision at the expense of any other debtor’s property.

For reference: as of 1 January 2018, the minimum wage is UAH 3 723.00. Consequently, if the debt amount under the enforcement document is less than UAH 74 460.00 (20х3 723.00 = 74 460.00), then the seizure of real property (in other words, the attachment of housing for sale) is prohibited by law.

However, the case should not always be brought to court. There is an out-of-court procedure for solving the problem of debt to utility companies: it is possible to agree on a debt restructuring by concluding a relevant agreement with the service provider. In such agreement the parties may specify everything they have agreed upon, including a schedule of monthly debt repayments. It should be noted that as of the date there is no law regulating the conditions for debt restructuring in Ukraine. Previously, the Law of Ukraine on Restructuring of Debt for Housing Rent, Utility Services, Gas and Electricity Consumed was approved (No. 554-IV dated 20 February 2003), but it concerned only those debts that arose as of 1 July 2003. Later, certain amendments to this Law were proposed, but they, unfortunately, have not been voted for. In particular, it was proposed by the amendments to include within the scope of the Law those debts that arose as of 1 January 2017. Yet nothing prevents service providers and their debtors from using the provisions of the aforementioned Law as a guide when concluding an agreement for debt restructuring. Especially, concerning the minimum/maximum amounts of monthly debt repayment. The main thing is that all terms and conditions of restructuring are in line with the legislation in force and satisfactory to both sides of the agreement. At the same time, such agreements may be concluded not only with the service providers, but also with the condominium associations. In this case the main requirements remain the same, namely: compliance with the laws and reaching agreement on all essential terms and conditions.

So why don’t people address the service providers or condominium associations with proposals for the out-of-court settlement of debt-related issues? The main reason is that the citizens can not get a professional legal advice on debt restructuring, and do not even know about such a possibility! It is difficult for legally unprepared debtors to independently draw up a letter to the relevant service with their draft debt repayment schedule, as well as to independently assess the restructuring agreement that may be proposed by the creditor (service provider). In each particular situation an experienced lawyer (counsel) can provide invaluable assistance: to ensure revocation of the court order, to file a motivated objection to the debt settlement provided, as well as an appeal against the decision of the court of first instance or a petition for revision of the default decision issued by the court. Therefore, the debtors still have to think over the possibility of seeking legal advice in any case, when they want to enter into the restructuring agreement or where the litigation is already in progress.

An important point: by concluding a debt restructuring agreement, the consumer automatically recognizes the amount of his/her debt. After that it will be quite difficult for a citizen to disagree with the terms and conditions already signed. After all, without such an agreement, in court and in the presence of a qualified legal advice, there is a possibility to challenge the amounts claimed by the service provider to be a debt. However, if the agreement is signed but the debt to service provider remains unpaid, it will be much easier to prove the amount of debt in court.