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Why millions of Russians could file for bankruptcy today

Russians can now file for bankruptcy

Millions of indebted Russians will gain the right to file for bankruptcy for the first time ever on Thursday, as the country's authorities try to ease people's debt burdens as they struggle amid a deep recession.

From October 1, a new law in Russia will allows citizens with total debt of more than 500,000 rubles ($7,600) and over three months of missed payments to file for bankruptcy. In addition, penalties can be imposed on debtors who fail to register as bankrupt if they cannot fulfil loan repayments.

Previously, only legal entities such as companies and business partnerships could file for bankruptcy and the idea of the new legislation is to create a framework in which individuals can restructure their loans.

Debtors owing less than 500,000 rubles can also file for bankruptcy if they can prove they are not able to pay the loans, according to Russian news agencies.

The law applies to all kinds of loans, from consumer and car loans to mortgages and loans in a foreign currency.

Women chose clothes at a street second hand market in St. Petersburg on December 28, 2014.

According to the Deputy Governor of Russia's central bank, Vasily Pozdyshev, the law will give more rights to those in debt. He forecast that 500,000 people could use the law immediately, although others estimate the number could be far higher.

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"The law will give the chance to these people once and for all solve the problem of harassment of creditors," he said, Russian state news agency RIA Novosti reported Thursday.

According to the United Credit Bureau, a division of Russian bank Sberbank which monitors credit history, 580,000 Russians, or 1.5 percent of the total number of debt holders, will immediately qualify for bankruptcy on October 1.

The number resorting to filing for bankruptcy could be far higher, however, with 6.5 million people who have not been paying their loans for more than 90 days also eligible, the UCB said.

Coming amid a deep recession accompanied by rising household debt and consumer loans, the timing of the new legislation is not coincidental.

Since Russia's economy nosedived in 2014 on the back of a drop in oil prices and international sanctions imposed for its annexation of Crimea and role in a separatist movement in Ukraine, the number of Russians in poverty has soared, as have the amount of consumer loans.

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Household loans soared in 2014, according to data from one of Russia's largest consumer lenders, Home Credit Group, loans granted in in 2014 totaled 6.7 billion euros ($7.4 billion) and the group had 9.1 million customers. In the first six months of 2015, the group had 9.7 million customers and 2.5 billion euros granted year-to-date.

According to Sberbank's UCB, 40 million Russians have some kind of consumer loan – almost a third of the population – although the number of loans being issued is decreasing – either due to bank's becoming more picky about their customers or a reluctance on behalf of consumers to get into debt.

For example, the UCB's latest data showed loans totaling 181 billion rubles were issued in August, down from 199 billion rubles in July.

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt. Follow us on Twitter: @CNBCWorld