When it comes to your finances, everyone deserves a second chance. That’s the basic tenet behind bankruptcy law. This is not a “get out of jail free” card; bankruptcy laws are there to help everyday people who got in over their heads get back on their feet.
That’s why the UAE Cabinet’s decision to enact a personal bankruptcy law is so critical for the well-being of everyone in the country. The law, which will go into effect in January, will allow people to continue their lives in the UAE without fear of criminal prosecution, ensuring that lives are not destroyed.
The details of the law have not yet been released and the details will be important. Looking at the information released so far, the new law will allow borrowers to “reorganise” their debt, not erase it. And while a bankruptcy filing will allow insolvent people to catch their breath, it will also likely prevent them getting credit again in the near future.
Bankruptcy is only for those people who have no other choice, and anyone who thinks this new law can be abused — by taking new loans or trying to avoid pay easily serviceable debt — will find themselves in a worse situation than when they started.
Bankruptcy is only for those people who have no other choice, and anyone who thinks this new law can be abused — by taking new loans or trying to avoid pay easily serviceable debt — will find themselves in a worse situation than when they started.
This law must be strictly enforced and in a transparent manner. While the law will likely only let people reorganise debt, banks will likely lose money — the insider term is “taking a haircut” — when a person declares bankruptcy.
The clearing of liabilities and the restricting of debt, often done by a trustee set up by a court, will need to be meticulous and absolute.
Banks will now have to take a serious look at who they lend to or suffer the consequences, a situation that the industry has not had previously faced in the UAE.
The other side of this is that expats and people with bad credit will likely find it tougher to get loans, which will also have long term consequences on the property market. Borrowers, too, will need to take a serious look at whether they need to take a loan — or a credit card — from a bank.
While this new law will likely cause short-term disruptions, the end result will be a more secure and sustainable economy for the UAE. The days of expats running away in the night to escape their debt will thankfully be over.
