Personal mortgage property of a bankrupt entrepreneur: is it subject to collection?

Cassation economic court of the Supreme Court “stood up” for the mortgage apartment of the borrower of the bank, delimiting the personal and business rights and obligations of individual entrepreneurs, as well as limiting the rights of claimants to this property.

So, with the conclusion in case No. 922/4404/15, promulgated on 06/04/19, the Supreme Court established and confirmed the rule stating that personal mortgage property when liquidating the status of an individual entrepreneur is not subject to recovery, but is subject to recovery solely to pay off the debt that it provides.

That is, an individual entrepreneur in a state of bankruptcy is not liable for the debts of a business with housing that is encumbered on the basis of a mortgage agreement concluded between him and the bank in the status of a simple individual, and the resolution of economic disputes with such circumstances should be carried out by the courts, taking into account the above rule …

More about the dispute

The bank applied to the local economic court with the requirement to recognize the invalidity of the purchase and sale agreement of the borrower’s apartment, alienated at the auction for the sale of real estate. The case has been considered many times …

The result of the next consideration was the satisfaction of the bank’s claim by the economic court. The court proceeded from the fact that the liquidator violated the requirements of Articles 49 and 90 of the Law of Ukraine “On the renewal of the debtor’s solvency …”, namely, carried out the transfer of the property of the debtor for sale in the framework of the bankruptcy case, despite the fact that it is the subject of securing the obligation under the consumer credit agreement, therefore, it is not associated with business activities.

The appeal overturned the decision. The bank was refused. Motivated by the fact that in the case file there is evidence of the use of the mortgage apartment by the debtor for the purpose of making a profit, that is, for entrepreneurial activity.

The dispute “reached” the cassation economic court of the Supreme Court, which did not agree with the opinion of the appellate instance. A decision was made public, confirming the already existing analogue conclusion on cases No. 6-210cc14 of 21.01.15 and 916/458/14 of 16.04.19. The Supreme Court explained that such an apartment cannot be included in the liquidation estate of a bankrupt entrepreneur, since its acquisition was not related to business.

Let’s summarize!

The legal conclusion in case No. 922/4404/15 should be known to all persons who are engaged in business and, during the period of active economic activity, acquire property for personal purposes. As you can see, the mixing of statuses can result in material losses.

Important! The Supreme Court clearly indicated that the legislator excludes the possibility of satisfying the claims of the creditor-pledgee for claims not related to business activities (Articles 90 and 91 of the Bankruptcy Law). Protection of interests in courts built on this conclusion will be guaranteed to be successful.

The consumer lending agreement concluded to meet the personal needs of the “borrower-just a citizen” has nothing to do with the obligations of the same “borrower-businessman”, and the property acquired under it can be used exclusively for the fulfillment of those obligations that it provides.