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Mortgages and bankruptcy: is it possible to get rid of debts and keep housing

Together with lawyers, we tell you what will happen to the mortgage debt in the event of bankruptcy of the borrower


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"To achieve the ultimate goal in the form of writing off all debts, the debtor should behave in good faith during the bankruptcy procedure, comply with the requirements of current legislation, cooperate with the financial manager and be honest before the court."
1. What is personal bankruptcy? What is its procedure, conditions? How much does this procedure cost (do I have to pay any fees)? How feasible is it in practice?

Federal Law No. 127-FZ of October 26, 2002 "On Insolvency (Bankruptcy)" contains provisions aimed at creating mechanisms for releasing individuals from obligations that cannot be fulfilled.

In such procedures, mechanisms are used for restructuring the debt of individuals, selling their property, and approving amicable agreements.

Both the citizen himself and the bankruptcy creditor, or the relevant authorized body, have the right to apply to declare a citizen bankrupt. Such appeals are submitted to the Arbitration Court of the corresponding constituent entity of the Russian Federation. It is important to note that the law provides not only the right of a citizen to appeal, but also the obligation of such appeal upon the occurrence of the events listed in the law.

So, a citizen is obliged to apply to an arbitration court with a statement of declaring him bankrupt if the satisfaction of the claims of one creditor or several creditors leads to the impossibility of the citizen's fulfillment of monetary obligations and (or) the obligation to pay mandatory payments in full to other creditors and the amount of such liabilities and obligations in the aggregate amount to at least five hundred thousand rubles.

The list of documents attached to an application for declaring a citizen bankrupt is established by cl. 3 tbsp. 213.4 of the Bankruptcy Law. Based on the results of considering the validity of an application for declaring a citizen bankrupt by an arbitration court, a restructuring of the citizen's debts may be introduced.

The plan for restructuring the debts of a citizen must contain provisions on the procedure and timing of proportional repayment in cash of claims and interest on the amount of claims of all bankruptcy creditors and the authorized body known to the citizen on the date of sending the plan for restructuring his debts to the bankruptcy creditors and the authorized body. The term for the implementation of the plan for restructuring the debts of a citizen cannot be more than three years.

If the Arbitration Court considers that there are no grounds for introducing a debt restructuring procedure, it may decide to declare the citizen bankrupt and to introduce the sale of his property.

The bankruptcy estate includes all the property of a citizen that is available on the date of the decision of the arbitration court on declaring the citizen bankrupt and the introduction of the sale of the property of the citizen and discovered or acquired after the date of the said decision. The only exception is that property, which cannot be foreclosed in accordance with the civil procedural legislation.

After the completion of settlements with creditors, a citizen declared bankrupt is released from further execution of creditors' claims, including claims of individuals, both declared and not declared when the restructuring of a citizen's debts or the sale of a citizen's property was introduced.
Legal expenses in the bankruptcy case of the debtor, including the cost of payment of the state fee, which was deferred or deferred, for the publication of information in the course of the procedures applied in the bankruptcy case of the debtor, and the costs of payment of remuneration to the financial manager are attributed to the property of the debtor and are reimbursed due to this property out of turn.
If the debtor himself submits an application to the court for declaring him bankrupt, he is obliged, in addition to making a deposit of the arbitration court, funds to pay remuneration to the financial manager in an amount equal to a fixed amount of the financial manager's remuneration for one bankruptcy procedure, to attach to the application evidence that he has property, sufficient to cover the costs of the bankruptcy case. If this evidence is not provided, the debtor's statement must be left without movement on the basis of Art. 44 of the Bankruptcy Law with subsequent return if they are not submitted within the prescribed period.
It is important to note that in order to carry out the procedures used in the bankruptcy of a citizen, a financial manager is approved, who, by virtue of the provisions of paragraph 4 of Art. 20.3 of the Bankruptcy Law is obliged to be an independent participant in the bankruptcy case, acting in good faith and reasonably in the interests of not only the debtor, but also creditors and society.
According to Art. 20.6 of the Bankruptcy Law, the remuneration paid to the financial manager in a bankruptcy case consists of a fixed amount, which is twenty-five thousand rubles at a time for carrying out the procedure used in the bankruptcy case, and the amount of interest.
From January 1, 2017, the amount of the state duty when filing an application for declaring a debtor bankrupt has been reduced from 6,000.00 rubles to 300.00 rubles.
In practice, conducting bankruptcy proceedings for a fixed fee is not common, since the procedure turns out to be unprofitable for financial managers. The costs of the administrator's services are deducted from the amount received from the sale of the property of an individual included in the bankruptcy estate, and citizens who do not have property that can be sold are also not able to pay for the services of the arbitration managers. Therefore, most often the debtor is forced to bear additional costs associated with the payment of additional remuneration to the manager.
2. Can I use the bankruptcy procedure if I have a mortgage debt? What conditions and requirements are there?

There are no additional restrictions on initiating bankruptcy proceedings for an individual if he has a mortgage debt. The procedure is initiated either by the debtor himself or by an interested person, in particular, a credit institution.

3. Will bankruptcy save the borrower from mortgage payments? What are the conditions?
A very popular misconception that you can only go bankrupt in terms of credit obligations. Even if an individual regularly pays mortgage obligations, but at the same time he has other credit obligations that he does not fulfill properly, it will not be possible to get rid of them only through bankruptcy proceedings. The bankruptcy procedure of an individual affects all his debt obligations (with the exception of specific requirements such as tort obligations, losses and subsidiary liability). With a pledge, 80% of the sale of the pledged property will be sent to the pledgee, the rest will go towards paying off other obligations. At the same time, if the financial requirements of the credit institution are not satisfied in full, the credit institution has the right to receive the remainder from the sale of other property of the debtor as part of third-priority creditors.

5. What will happen to the mortgage apartment? Will it be sold at auction? Will the mortgage debt be paid off?

Mortgage property is subject to sale. The procedure looks like this:

- After the formation of the register of claims, mortgage housing is entered into the bankruptcy estate;
- The assessment is carried out by an independent expert;
- The evaluation report is provided to the parties to the case. If the cost of an apartment is too high or too low, the debtor or creditors can challenge it. If there are no objections, the starting price of the lot for the auction is approved.

The organizer of electronic trading is elected. Trades are held in the form of an electronic auction.

If the apartment is sold in the auction, the funds are transferred to a special account, and the financial manager distributes the money in accordance with the law. If the property is not for sale, the bank, after re-bidding, has the right to keep it for itself to pay off the debt.
1. Is it possible to keep the mortgage apartment? In what cases and what needs to be done for this?

It is possible to keep the mortgaged property. There are several mechanisms for how this can be done:

• Debt restructuring. The most efficient and completely legal mechanism. The procedure is introduced within the framework of bankruptcy, but does not imply the withdrawal of a mortgage apartment, the formation of bankruptcy estate and debt cancellation. The procedure involves drawing up a plan to pay off the debt in a period of up to 3 years, on favorable terms. The plan is approved by the court if the debtor has the ability to pay and the amount is affordable for him. Of course, all the figures in this matter will need to be documented.

• Settlement agreement. Article 213.31 of the Federal Law "On Insolvency (Bankruptcy)" provides for the specifics of terminating bankruptcy proceedings of a citizen in connection with the conclusion of an amicable agreement. The decision to conclude an amicable agreement on the part of the citizen debtor is made by the citizen. The settlement agreement is approved by the arbitration court. The amicable agreement concluded in the course of proceedings on the bankruptcy of a citizen applies to the claims of bankruptcy creditors and the authorized body included in the register of creditors' claims as of the date of the meeting of creditors that decided to conclude an amicable agreement. If an amicable agreement is concluded, the bankruptcy proceedings of a citizen are terminated, the execution of the citizen's debt restructuring plan and the moratorium on the satisfaction of creditors' claims are also terminated, and the citizen begins to pay off the debt to creditors. However, if the bankruptcy proceedings are resumed due to violation of the terms of the settlement agreement, the citizen is declared bankrupt and the sale of the citizen's property is introduced in relation to the citizen.

In practice, there are cases when unscrupulous debtors resort to such methods of saving real estate as buying out an apartment by a “friendly” buyer. It looks like this: The sale of the property involves the formation of a bankruptcy estate, holding an auction at which the apartment will be sold. A customer friendly to the debtor is registered on the electronic platform, takes part in the auction and buys out the housing. In the future, all settlements are made between such a buyer and a debtor.

There are also cases when debtors, on the eve of bankruptcy proceedings, take a consumer loan and pay off a mortgage. This behavior of debtors is observed in cases where there is a “couple of payments” left until the full payment of the mortgage loan. The procedure for such debtors is as follows: an individual draws up a consumer loan, the funds received are directed to repay mortgage loan obligations, residential real estate ceases to be collateralized property and becomes the property of an individual. In the future, if the debt on obligations becomes an unbearable burden, then such debtors go to court with a corresponding statement, while their own real estate receives the status of the only housing (provided that the debtor does not have other residential premises) and is excluded from the bankruptcy estate, and debts on consumer loans and other obligations are written off without the sale of real estate.

Bottom line.

To achieve the ultimate goal in the form of writing off all debts, the debtor should behave in good faith during the bankruptcy procedure, comply with the requirements of current legislation, cooperate with the financial manager and be honest before the court.