Everything you need to know about the UAE debt law

• Bankruptcy Vs Insolvency
• Insolvency Law for Debt Relief
• Apply for Insolvency in the UAE
• Modes of Debt Settlement
• UAE Debt Law Misuse Penalty
• FAQs

Following its cabinet approval, the UAE insolvency framework has been further strengthened by new legislation that came into full effect in May 2024. The law protects debtors in Dubai and other emirates from legal prosecution in case of financial debt, prioritising financial rehabilitation over punitive measures.

The federal insolvency and bankruptcy laws decriminalise a debtor’s financial obligations and offer a structured three-year plan to help repay outstanding amounts. Here is everything you need to know about the current UAE debt laws and how they assist residents burdened with debt.

BANKRUPTCY LAW VS. INSOLVENCY LAW IN THE UAE

Before we get into the specifics about the new insolvency law in the UAE, it is important to understand what this law actually is. 

The legal landscape was updated significantly in May 2024, the primary protection for residents remains the Insolvency Law (Federal Decree-Law No. 19 of 2019).

Article (8) of this Insolvency Law is the cornerstone for individuals; it governs the legislation pertaining to cases of natural persons with financial difficulties. This includes situations where residents are unable to repay personal debts, such as credit card bills or bank loans.

It is crucial not to confuse this with the UAE Bankruptcy Law (Federal Decree-Law No. 51 of 2023). The distinction is quite clear:

The Bankruptcy Law

The Federal Decree-Law No. 51 of 2023 governs companies, merchants, and sole traders. It is important not to confuse the new bankruptcy law with the insolvency law. It is handled by specialised Bankruptcy Courts designed to streamline corporate restructuring.

If you are an individual with personal bank debt, you fall under the protection of the Insolvency Law.

The Insolvency Law

On the other hand, Federal Decree-Law No. 19 of 2019, Article 8 caters exclusively to individual debtors (non-traders). It is designed to provide a legal safety net, allowing individuals to settle their personal financial obligations through court-supervised plans without facing criminal prosecution.

The existing bankruptcy law in the UAE deals specifically with businesses and companies in the UAE. The insolvency law, on the other hand, caters to individual debtors.

HOW WILL THE INSOLVENCY LAW HELP WITH DEBT RELIEF IN THE UAE?

Previously, individuals who were unable to repay their debt in the UAE were faced with disciplinary measures, which included a possible travel ban and even imprisonment.

The UAE federal law for insolvency has replaced this with a more lenient approach that allows defaulters in the UAE to efficiently manage their outstanding finances.

Here are some of the amendments to the law that will help individuals with debt relief in the UAE.

• Specialised Bankruptcy Courts are established where cases are heard by dedicated judges in specialised courts, ensuring faster resolutions.
• The Role of Article (8) allows the court to appoint one or more experts to assist you. These experts work with you and your creditors to design a settlement plan that fits your income.
• As per the legal moratorium, once your application is accepted, a legal “stay” or moratorium is usually placed on all creditor claims. This prevents banks from taking separate legal action against you while your plan is being finalised.
• Legal support for individuals who have existing debt or anticipate increasing financial difficulties in the near future.
• Place debtors in the UAE on a three-year settlement plan with the help of experts to assist with debt payoff.
• Protect debtors from legal prosecution by presenting them with opportunities to work and be productive. This will allow them to provide for their families, especially in cases where the debtor is the sole earning individual in the family.
• Prevent debtors from taking any further loans unless the court decides otherwise.

These amendments to the UAE debt law received widespread praise from residents and legal experts for their positive impact on the community.

Emiratis and expats who are unable to pay their credit card bills or outstanding loans in Dubai no longer have to fear imprisonment. These individuals can now, with the support of the UAE Government, continue to work to repay their debt(s). 

HOW CAN DEBTORS APPLY FOR INSOLVENCY IN THE UAE?

Residents who are currently in debt or anticipate financial difficulties that may prevent them from settling all their debts in the future can file an application with the court. Applying for insolvency is now handled through a more digital and streamlined process.

However, you must meet certain financial thresholds set by the 2024 regulations. The process to apply for insolvency in the UAE is fairly simple.

STEP 1: RAISE A CASE FOR INSOLVENCY

First and foremost, the debtor needs to approach the court and register their case for insolvency.

STEP 2: VERIFY YOUR DEBT THRESHOLDS

According to Cabinet Resolution No. 47 of 2021 (Regarding the Determination of the Debt Amount), specific limits apply before a case can be registered:

INDIVIDUAL DEBTORS

Under Article (1) of the resolution, a natural person must have a total outstanding debt of at least AED 250,000 to file an application for insolvency and liquidation.

Creditor-led Applications: Conversely, Article (2) stipulates that a creditor (or group of creditors) can only initiate a case against a debtor if the debt exceeds AED 1,000,000, a significant increase from the original AED 200,000 limit in the 2019 law.

CREDIT LED APPLICATIONS

For all credit-led applications, Article (2) stipulates that a creditor (or group of creditors) can only initiate a case against a debtor if the debt exceeds AED 1,000,000, a significant increase from the original AED 200,000 limit in the 2019 law.

STEP 3: PREPARE AND SUBMIT THE DOCUMENTS

As the third step, the debtor must prepare the necessary documents and duly submit them to the court. The application process remains governed by Federal Decree-Law No. 19 of 2019 on Insolvency (specifically Articles 7 and 28). As a “Natural Person,” you must provide these documents as part of the insolvency application and include:

• A memorandum summarising the financial position of the debtor, including internal and external sources of income, professional and/or vocational status, liquidity projections and income sources for the 12-month period following application submission
• A statement of creditors’ details, including their names, addresses, amounts of debts owed to them, maturity date of debts and any securities placed in lieu of these debts
• A statement of the debtor’s property (movable and immovable) located within and outside the country. The statement must also detail the approximate values of each property on the date of submission
• A declaration of any ongoing judicial or legal proceedings against the debtor
• A statement that declares the debtor currently faces or might face financial problems that lead to inability to pay off debts due at present or in future
• The funds required to support the debtor, their family and/or dependents, if any
• A proposal for debt settlement by the debtor
• The name of the expert nominated by the debtor in accordance with the stipulations of the law
• A full disclosure of out-of-country financial transfers done in the 12 months preceding the application
• Any additional documents required by the court in support of the application

STEP 4: PAY THE FEES AND EXPENSES

The last step is to pay the fees for expert’s services and the judicial proceedings as deemed fit and specified by the court. In case the debtor does not have the means to make these payments, the law allows provisions for delayed payments.

Under the updated provisions of Cabinet Resolution No. 94 of 2024 (the Executive Regulation of the Financial Restructuring and Bankruptcy Law), applicants are now required to provide a financial guarantee. In accordance with Article (8), you must submit a deposit or an approved bank guarantee equivalent to 5% of your total debt to cover the initial costs of the legal proceedings.

Please note that for those facing extreme financial hardship, the Personal Insolvency Law in the UAE provides a safety net. The Head of the Bankruptcy Department has the authority to waive or defer this deposit if you can demonstrate a total lack of liquidity.

WHAT HAPPENS NEXT?

Once the application is submitted under the UAE debt relief law, the court proceeds with the necessary steps required to preserve the existing funds of the debtor. After that, the court decides whether the debtor’s application should be accepted for the settlement of financial obligations or not.

In case the application is accepted, the court assigns an expert or a team of experts to the case for further proceedings. If the application is rejected, the individual can file an appeal in the Court of Appeal. The Court of Appeal’s decision on the matter is considered final.

MODES OF DEBT SETTLEMENT UNDER THE UAE DEBT LAW

Essentially, this new UAE federal debt law will offer two mechanisms to resolve the financial insolvency of individuals. This will be done by offering a plan for settling financial obligations and through the insolvency and liquidation of funds. 

This UAE federal debt law will offer two mechanisms to resolve the financial insolvency of individuals – a plan for settling financial obligations or through insolvency and liquidation of funds. 

1. SETTLING FINANCIAL OBLIGATIONS 

Based on the debtors’ situation, the court will appoint one or more experts to assist the debtors during these proceedings and devise a settlement plan for the financial obligations. Once a plan has been identified, the creditors will vote on it and implement the plan. You can also follow some tips to avoid debt in the UAE.

This remains a voluntary, expert-led process under the 2019 Insolvency Law. You work with a court-appointed expert to devise a repayment plan that must be ratified by a majority of creditors and implemented within a period not exceeding three years.

The court has the right to deny or decide to discontinue the process of settlement of obligations if:

• The debtor refrains from or commits an action to deliberately damage or conceal any or part of their property.
• The debtor submits false statements about debts, funds or rights of the debtor.
• There is non-payment of debts for over 40 consecutive working days after maturity due to financial inability. The debtor, in this case, can apply for insolvency

2. INSOLVENCY AND LIQUIDATION OF FUNDS (THE 65 DAY RULE)

The second way to address insolvency in the UAE is the liquidation of assets and funds to pay off debt. This method is applicable when the debtor is unable to pay off their debts for over 65 consecutive working days past the due date, because of financial issues.

If a settlement is not possible, the court may order the liquidation of assets. Notably, Article (3) of Cabinet Resolution No. 47 of 2021 officially amended the timeframes for this process. A debtor is now considered to have “ceased payment”—triggering potential liquidation—if they fail to pay their dues for more than 65 consecutive working days (increased from the original 50 days).

When the debtor opts for liquidation, the court appoints a trustee to facilitate and control the liquidation of funds and assets on behalf of the debtor. This appointment is made in accordance with the provisions of Article (8) of the new debt law.

When the court decides to proceed with liquidation under Article 28 of the Insolvency Law, it appoints a trustee to manage the process. The trustee’s role is to facilitate and control the sale of assets on behalf of the debtor to ensure creditors are paid fairly.

In certain circumstances, creditors can also request the liquidation of a debtor’s funds. However, per the 2021 and 2024 updates, a creditor can now only initiate these proceedings if the outstanding debt is at least AED 1,000,000

Essentially, this new UAE federal debt law will offer two mechanisms to resolve the financial insolvency of individuals. This will be done by offering a plan for settling financial obligations and through the insolvency and liquidation of funds. 

PENALTIES FOR MISUSING THE UAE DEBT LAW

The Ministry of Finance in the UAE has set up strict penalties for any debtor or creditor who misuses the debt recovery law for defaulters in the UAE.

PENALTIES FOR CREDITORS

Creditors who are found guilty of committing any of the following acts shall be liable to imprisonment and a fine ranging between AED 10k and AED 100k.

• Making a bogus debt claim against the debtor
• Illegally increasing the debtor’s debt
• Voting in any meetings on decisions relating to the settlement of financial obligations of the debtor with the knowledge that it is legally prohibited to do so
• Concluding agreements with the debtor, which gives them a special advantage over other creditors, after the court’s decision to commence insolvency proceedings and liquidation of funds

PENALTIES FOR DEBTORS

Similar to bounced cheques in Dubai, insolvent debtors in the UAE are also subject to hefty penalties. Under the updated framework of the Federal Decree-Law No. 51 of 2023 and the 2024 Executive Regulations, these penalties ensure the system remains fair for all parties.

These may include imprisonment for a period not exceeding two years and/or a fine of AED 20k to AED 60k, if they are found guilty of causing loss to creditors, as a result of one of the following acts:

Incurring any expenditures that violate the terms of the payment plan

• Spending large sums of money in a speculative business outside their usual business, or purchasing services/goods/materials for personal or domestic use, that do not correspond with their current financial situation
• Paying off a specific creditor within six months (or up to two years for related parties under the 2024 “look-back” rules) prior to the application, thereby damaging the remaining creditors
• Engaging in gambling, knowing that their creditors may be adversely affected
• Paying the debts off for one of the creditors and in turn causing damage to the remaining creditors within a period of six months prior to the submission of their request to settle their obligations or declare insolvency
• Disposing off their funds in bad faith and at less than the market price or resorting to harmful means to damage creditors with the intention of delaying the declaration of insolvency and liquidating their funds

FREQUENTLY ASKED QUESTIONS

WHEN WILL THIS LAW BE IMPLEMENTED?

The UAE debt collection laws have been in effect since January 2020.

Is the UAE Insolvency Law the same as the Bankruptcy Law?

The new insolvency law in the UAE is introduced to deal with and protect individuals going through financial difficulties. The bankruptcy law deals only with liquidation and insolvency matters of companies.

WHAT IS THE COURT’S PROCESS OF DEALING WITH DEBTS?

According to the UAE financial insolvency law, the court will appoint an expert to deal with debt processing. The expert, in coordination with the debtor and their creditors, will devise a debt settlement plan that does not exceed three years. Once the plan is finalised, all financial obligations will be fulfilled according to the stipulations agreed upon.

CAN DEBTORS APPLY FOR FURTHER LOANS DURING THE SETTLEMENT PERIOD?

No, the debtor is not allowed to take any further loans, unless the court decides so, in adherence to a request from the debtor, creditor(s) or the appointed expert.

These debt laws in the UAE are a breath of fresh air for those burdened with insolvency. The UAE government, like always, remains determined to make life easier for its residents. While you’re in the UAE, debt or no debt, make sure you have a valid Emirates ID with you at all times. It is also important that your stay in the country does not exceed your visa’s validity, so make sure to check your UAE visa status online.

We hope you find the information on the laws concerning bad debts in the UAE useful. For more informational content on the new laws in the UAE, subscribe to MyBayut.