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MENA Judicial &Financial Colloquium
5-6 December 2012
Dubai
Consumer Bankruptcy: An Introduction
Sumant Batra
Past President, INSOL International
Chairman, Kesar Dass B & Associates

Consumer debt
The consumer indebtedness is a great dynamic factor
in any economy.
Consumer consumption is required for both economic
stability and growth.
Governments encourage consumer consumption by
facilitating and expanding consumer credit.
Solving consumer debt problems can be complex.
They are often caused by socio-psychological factors
such as redundancy, divorce, disability, addiction.
These have serious impact on quality of life of debtor.

Consumer debtor
A debtor whose liabilities are incurred primarily for
private, family or household purposes and not as a
result of carrying business, either on own account or in
Partnership or from guarantees.
From the perspective of consumer debtor however,
what matters is their personal liability for debts which
may be caused by private or commercial reasons.
Essentially, it is about natural persons.

INSOL Principles that underlie
resolution of consumer debt problems
Since 1997 INSOL has focussed on the issue of
consumer debt. In 2011 INSOL published a Consumer
Debt Report –II which seeks to obtain global
information on jurisdictions’ laws and practices and to
seek to derive general principles underlying
approaches to the issues across the world.
The report covers 18 countries.

1. Fair and equitable allocation of consumer credit
risks
Society should accept that a consumer debtor may be
unable to pay debts for reasons beyond control.
Law should provide for a fair and equitable, efficient
and cost-effective, accessible and transparent
settlement and discharge.
Creditors should be prohibited from pursuing the
debtors during insolvency proceedings.
Insolvency estate should be determined. Debtor should
be able to make a living.

Separate proceedings for debtors who have no
redemption capacity and those with accommodation
debts.
Cross-border recognition is important.
2. Discharge of indebtedness, rehabilitation or a
“fresh start”.
Debtor should have an opportunity to have a discharge
from pre-existing liabilities and make a “fresh start” free
from past financial obligations.
Ideally there should be no link to future income after
termination of proceedings.
Discharge should cover as many debts as possible.

Separate proceedings for debtors who have no
redemption capacity and those with accommodation
debts.
Cross-border recognition is important.
2. Discharge of indebtedness, rehabilitation or a
“fresh start”.
Debtor should have an opportunity to have a discharge
from pre-existing liabilities and make a “fresh start” free
from past financial obligations.
Ideally there should be no link to future income after
termination of proceedings.
Discharge should cover as many debts as possible.

3. Extra-judicial approach.
Out of court proceedings should be encouraged. They
may operate under the shadow of law. They may be
designed as a pre-requisite to filing formal proceedings.
Creditors should have a fair assurance that its rights
are protected.
Court approvals may be given to make the schemes of
arrangement binding.
Professional independent debt counseling is critical.

4. Prevention
Information and education on risks attached to
consumer credit.
Lenders should observe the way credit is made
available to consumers. A fine balance must be drawn
as tightening standards will reduce consumption.
Organizations of consumer and lenders may be set up
that should set up joint programs to monitor consumer
loan delinquencies.

Thanks!
Sumant.batra@kesardass.org