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Best Practice
Can you keep your home if you are declared bankrupt?
YES. If you have filed for Chapter 13 bankruptcy, in which case you keep your house but commit to a repayment plan towards your unsecured creditors. Chapter 13 takes your house OFF the auction list.
FACT IS this does not apply in Kenya. It applies in the US.
Here in Kenya, secured creditors are the only ones who do not have to go to court to begin debt collection procedures against you. By the time you are thinking of taking this route, secured creditors will most likely have auctioned your home – as this is their legal right.
Much like cigarettes have scary images of what can happen, it may be time that borrowing agreements came with visually shocking images. Don’t you think?
Two opposite goals?
The Insolvency Act and Insolvency Regulations (2018) is supposed to provide two levels of protection. And they are equal opposites.
‘The twin goals of consumer or individual bankruptcy law are to protect creditors and ensure optimal payment to them where possible;
and at the same time –
to provide shelter and a “fresh start” to individual debtors overburdened by debt.’ (Source: Judge Prof. Ngugi in NKR Insolvency Cause No. 4 of 2019 [2020] eKLR)
Two conditions
It is only upon meeting this double threshold – demonstration of good faith and full disclosure of all financial information – that a Petitioner can become entitled to a bankruptcy order.
Most of the complainants who are owed money feel that the Petitioner is lying about their financial status. That they have hidden assets amongst their family and friends. That they are using the process to frustrate collection efforts.
Prof Ngugi ruled: “I have considered the statement of affairs filed by the Debtor, Jitesh Malde Shah (a former miller). It shows that the only assets he has are his personal effects worth Kshs. 7,000.00 while the aggregate debt due to the creditors is Kshs. 19,520,613.28 and which includes judgments against him.”
Did you know?
This protection is not approved automatically. There are provisions that apply, when seeking relief from the Kenyan courts.
The “fresh start” goal is accomplished through the bankruptcy discharge, which usually releases the honest but unfortunate debtor from personal liability from certain debts and prevents creditors from taking any action against the debtor to collect those debts.
The individual seeking bankruptcy protection is required to scrupulously demonstrate that he is acting in good faith and disclose all his financial information.
Can you imagine?
Under Section 32(1) of the Insolvency Act (2015) a debtor is entitled to apply to be adjudged bankrupt on the grounds that he or she is unable to pay his or her debts.
The Insolvency Act allows a debtor to enter into an arrangement with the creditors as an alternative to bankruptcy. A debtor’s proposal (with or without modifications) takes effect as a voluntary arrangement by the debtor on the day after the date on which it is approved by the Court.
In the US, the consent of secured creditors would NOT be required.. The court would simply make its own assessment and rule. This is the key difference between the US and Kenya’s debtor protection systems.
Under Chapter 13, homes are automatically saved from foreclosure.
Is it time for Kenya to borrow a leaf from Chapter 13 bankruptcy laws that give the Debtor much-needed time and mental space to make good on his debts – without becoming homeless?
SOURCES
A maize miller seeks protection [Jitesh Malde Shah]
Prepared by: AuctionsinKenya.com
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