Now the Debtor's Only Home Can Be Taken Away

The civil procedural legislation established that it is impossible to foreclose on the debtor's only dwelling. However, this prohibition has become controversial since 2012, when the Constitutional Court indicated that such immunity can only apply to housing reasonably sufficient for the residence of the debtor and their family, and in these years there were no criteria for establishing the limits of enforcement immunity, and the Supreme Court of the Russian Federation rarely took into account the nature of the luxury of the debtor's home when collecting the debts.

So, on April 26 this year, the Constitutional Court of the Russian Federation issued a new Resolution No. 15-P on the case of checking the constitutionality of par. 2 clause 1 Article 446 of the Code of Civil Procedure of the Russian Federation and clause 3 of Art. 213.25 of the Bankruptcy Law, which allowed the possibility of exchanging the debtor's luxury apartment for more modest housing in order to pay off debts to creditors. So, the unconditional refusal to foreclose on the only housing was canceled.

• Now the courts, when resolving such issues, must take into account the following:
• How does the market value of housing compare with the size of the debt?
• When was the property purchased: before or after the debt occurred; recognition of a debt by a court or opening a bankruptcy procedure?
• Was the debtor notified of the decision to collect the debt or the commencement of bankruptcy proceedings at the time of the purchase of the property?
• Has the transaction for the purchase of housing been completed without abuse on the part of the debtor?
• Is there a case of concealment of income on the part of the debtor?

At the same time, the waiver of immunity in relation to a single dwelling should not:

• be a punishment or deterrent,
• force a person to change his or her place of residence (settlement) only if the debtor him\herself agrees,
• violate the norms for the provision of premises under a social rent agreement (that is: 33 sq.m. - for 1 person; 42 sq.m. - for a family of 2 people; 18 sq.m. for each family member - of 3 or more people). 

The Constitutional Court of the Russian Federation also indicates that the legislation still needs to be amended, but before that, the courts will have to be guided by the new Resolution No. 15-P. 

This may influence business in a bad way. First off, business is a risk, and an entrepreneur can be left with nothing, even without deceiving anyone: the new rules will allow the entrepreneur to be evicted to the minimum suitable housing. In our opinion, the abolition of property immunity opens the way for abuse.

To reduce the risk of bankruptcy or protect your interests in the procedure – consult TEAM!

The new explanations of the Constitutional Court of the Russian Federation, on the one hand, provide a sufficiently large margin for abuse by creditors for the exchange of debtors' housing to the minimum suitable, which is unlikely to have a positive effect on business development in the country, but on the other hand, they provide a real tool for obtaining receivables from persons who actively hide their income and expect that any scams will go unpunished. 

TEAM always stands on the side of justice and is ready to help you and your business in any ambiguous situation!