The Constitutional Court instructed to clarify the conditions for extending executive immunity to money from the sale of the bankrupt's only mortgage housing

The Constitutional Court received a complaint from the creditor of a bankrupt citizen whose wife is also bankrupt. The wife repaid the loan debt with money from the sale of a joint mortgage apartment, which is the only home. In this regard, about 3.8 million rubles were excluded from the wife's bankruptcy estate to buy housing to replace those sold due to property (executive) immunity.

The creditor tried to challenge the relevant judicial act. In his opinion, part of the amount from the sale of the marital property should be included in the bankruptcy estate of the bankrupt citizen. Unsuccessful, the creditor filed a complaint with the Constitutional Court, believing that Article 446 of the Code of Civil Procedure (“Property that cannot be foreclosed under executive documents”) and Art. 213.25 of the Bankruptcy Act (“A citizen's property subject to sale if a citizen is declared bankrupt and the sale of a citizen's property is introduced”) do not comply with articles 8, 19 et 46 Constitutions. The Code of Civil Procedure and the Bankruptcy Act assume that a debtor can be allocated money to buy a home that is left after the collateral creditor's claims are satisfied by selling the collateral. Moreover, the amount is much higher than the allowable limit established Article 213.25, paragraph 2, of the Bankruptcy Act if there are outstanding obligations to other creditors.

The position of the Constitutional Court

The Constitutional Court reiterated that due to the different and often diametrically opposed interests of persons involved in a bankruptcy case, legislators should strive to balance these interests, taking into account their nature. This is the public law goal of the bankruptcy institution, designed to create conditions for protecting the economic and legal interests of all creditors with the least negative consequences for the debtor.

The claims of the collateral creditor are satisfied primarily against other creditors. However, the legislation does not provide for “any special features for amounts received for a single mortgage”. Therefore, the uncertainty of the conditions for extending executive immunity to part of the money from the sale of a single mortgage can disorient non-tax lenders who expect their claims to be satisfied with these funds.

The Constitutional Court found that Article 446, paragraph 2, part 1, of the Code of Civil Procedure et paragraphs 2 and 3 of article 213.25 of the Bankruptcy Act do not comply with the Constitution, since they do not provide certainty about the conditions for extending property (executive) immunity to money raised from the sale of a mortgaged dwelling, which is the only one, and left after settlements with the collateral creditor.

The Constitutional Court emphasized:

“In such a sensitive area as housing rights guarantees, even if they arise in the process of a citizen's bankruptcy, increased requirements should be placed on the certainty of legal regulation of the conditions for granting these guarantees.”

Until the legislator resolves the above conflict, a temporary settlement procedure has been introduced: money from the sale of mortgage housing may be excluded from the bankruptcy estate at the request of a bankrupt. However, in order to prevent bad faith, the court has the right to cut the amount if it makes it possible to purchase a dwelling that clearly exceeds the level sufficient to meet the reasonable housing needs of the debtor citizen and his family members.

‍