Will bankrupts be allowed to keep mortgage housing?
Bankrupt citizens will be able to count on the preservation of the only housing taken on a mortgage. Now, in the event of the insolvency of the borrower, it goes under the hammer, even if there is no delay in the mortgage, and the problems are associated with other creditors. The State Duma is discussing the possibility of allowing debtors to conclude special amicable agreements with banks that will allow them to continue servicing, including with the help of third parties, a mortgage loan. Experts assess the initiative as ambiguous: it protects the interests of Russians, but leaves room for abuse.
What happens to a bankrupt mortgage apartment
In Russia, since October 2015, there has been a judicial procedure for the personal bankruptcy of citizens. With an overdue debt of more than 500 thousand rubles. creditors can initiate a debtor’s insolvency case. The debtor himself can go to court with a smaller amount of obligations, if he understands that he will not be able to serve them.
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Personal bankruptcy allows a person to get rid of unbearable debts. But before that, all of his assets of any significance are sold at auction, and the proceeds are sent to settle accounts with creditors. Inviolable are: amounts in the amount of the minimum subsistence level, personal belongings, the only housing that is not in a mortgage. If there is a mortgage, even without delays, then the living space also goes under the hammer.
The proceeds from the sale of real estate are used to pay off mortgage debt (up to 80%, but not more than the amount of the debt), and the remaining money goes to other creditors and to pay various costs during the insolvency procedure. Moreover, the higher the value of real estate and the lower the remaining mortgage debt, the more other creditors get. The borrower can save his property only if the creditors agree to a settlement agreement.
Many bankrupt citizens face the problem of losing a mortgage apartment. By data Fedresurs, in 2022 alone, 278,000 Russians went bankrupt through the courts, and secured creditors filed claims for 49.1 billion rubles, including mortgage ones.
Special conditions for the preservation of housing
The State Duma drew attention to this practice, believing that it “casts doubt on the constitutional (state) guarantees in the field of housing for citizens.” Amendments United Russia deputies Natalya Kostenko, Ivan Demchenko, Andrey Doroshenko introduced the bankruptcy law.
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They proposed to allow the court to leave bankrupt mortgaged housing, which is the only and suitable for living for this citizen and his family members, with the consent of the mortgagee bank. After the approval of the settlement agreement by the court, which does not require the approval of other creditors, the debtor will be required to continue paying the mortgage from his income. Or instead, it can be done by loan guarantors, relatives or someone else.
The remaining obligations will be repaid in the standard mode: at the expense of money from the sale of property, if any. If the proceeds are not enough to pay in full, the outstanding portion will be written off.
Thus, of all obligations after the end of the personal bankruptcy procedure, a citizen can only have a mortgage loan, and he will be released from other loans.
Experts pay attention to the social orientation of the bill. “Such an initiative seems to be socially fair, as it is aimed at preserving mortgaged housing among the most vulnerable segments of the population,” says Yury Semyonov, lawyer at the law firm Alimirzoev and Trofimov.
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However, experts admit that some borrowers will use other borrowed funds to pay off their mortgages, such as consumer loans. And in this case, they run the risk of becoming bankrupt, but with debts that are not closed even after the sale of property. The fact is that the insolvency law allows not to cancel debts if the court establishes that the person acted in bad faith.
“The adoption of this initiative does not cancel the right of the court not to write off debts if bad faith is established. However, it will be more difficult to prove dishonesty. Since the law will divide obligations between creditors (collateral and others. – “Profile”), it is difficult to refer to intent,” believes Elena Kravtsova, partner at ProLegals.
Lenders still have the right to challenge mortgage payments involving other borrowed funds as transactions with preference, recalls Yuri Semyonov.
Some lawyers fear that the proposed mechanism may adversely affect the payment discipline of citizens. “The fear of losing mortgage housing is often the only argument that disciplines the debtor in terms of payment discipline to all creditors,” notes Elena Kravtsova. “I believe that having an opportunity to keep this housing, independent of other creditors, will negatively affect the behavior of debtors in principle.”
Risk of violation of creditors’ rights
In addition, experts fear that the initiative will lead to infringement of the rights of creditors, obligations to which are not secured by anything. In bankruptcy cases, citizens receive, on average, only a few percent of the debt. For example, in 2022, the share of satisfied claims was 3.5%, in 69% of cases creditors received nothing, while in 90% of cases the debtors had no property at all, statistics show.
“First of all, this is due to the fact that the vast majority of bankruptcy cases of citizens are considered in the absence of any property, except for the only mortgage housing. If he is excluded from the bankruptcy estate, other creditors may be left with nothing,” says Yuri Semyonov.
In fact, unsecured lenders often get only the balance of funds from the sale of collateral. “Now they can count on receiving part of the proceeds from the sale of the pledged property if its value exceeds the value of the debt to the bank or to pay off other expenses in a bankruptcy case,” says Vladimir Efremov, partner at BGP Litigation law firm. In his opinion, the initiative is obviously paternalistic in nature and potentially puts other creditors of the debtor in a disadvantaged position.