Collateral in bankruptcy proceedings
Many people have to turn to banks and credit organizations - they want to have a new apartment or car, they need money to open their own business, or they need a new computer for work. But due to the difficult economic situation in the country, sometimes many individuals suffer losses, remain unemployed and cannot repay their loan debt on time. What to do in this situation?
The legislation of the Russian Federation allows debtors who, for various reasons, cannot satisfy the demands of creditors, submit an application to the arbitration court to declare the debtor bankrupt. When an individual goes bankrupt, citizens usually go through two main stages - restructuring of existing debt and sale of property, including that taken on credit. In our article we will tell you everything about collateral in bankruptcy proceedings, the procedure for its sale, the features and nuances of this procedure.
Legal regulation of bankruptcy
According to the current legislation of the Russian Federation, all collateral is security for repayment of debt on a loan. In other words, no credit institution will be able to provide a citizen with funds without a certain collateral. In the event that the debtor cannot repay loan obligations and there are no other ways to repay the debt, the collateral property must be sold.
The sale of collateral in bankruptcy proceedings is regulated by the following legislative norms and acts:
Civil Code of the Russian Federation. Federal Law “On Insolvency (Bankruptcy)” No. 127-FZ. Federal Law “On Mortgage”. Federal Law “On Pledge”. During the consideration of a bankruptcy case, the arbitration court appoints a financial manager, whose responsibilities include the inventory, assessment and sale of the debtor's property, including collateral.
According to the Bankruptcy Law, the property of citizens pledged to the bank may be seized in the following cases:
The period of overdue loan payments exceeded 3 months. The amount of debt is more than 5% of the total amount of the collateral. When submitting an application to the court, the debtor is obliged to provide all information about the presence of collateral - the entire amount of debt for the period of filing documents, the full name and location of the creditor, the loan agreement with the bank. The debtor will not be able to sell an apartment or car that is pledged on his own; at the moment he is not the owner, but only acts as a mortgagor.
Mortgaged real estate - a feature of implementation Often, Russian citizens turn to banks to take out a mortgage on real estate - to buy a new apartment or private house. This is the most common subject of collateral, since all other property is not considered liquid.
According to regulations and provisions, real estate that is registered as collateral has certain features. After signing the loan agreement, when transferring the property as collateral, the parties must draw up a special document - a mortgage. This is a kind of security that gives the legal right to transfer this property to third parties and sell it upon foreclosure.
The real estate property is in the use of the citizen, but he has no right to dispose of it. All transactions with the subject of pledge can be carried out only with the permission of the pledge holder (bank). If an individual has a private house under mortgage, then the mortgage must also include the land plot on which this house is located.
Citizens against whom bankruptcy proceedings have been opened have the right to retain their property, but under certain conditions. This process is also regulated by the procedure and provisions of the Civil Procedure Code of the Russian Federation. And it contains a list of citizens’ property that cannot be seized and sold at auctions. The leading role in this list is played by the only housing of the debtor and his family members.
But the rules of the Code of Civil Procedure do not apply to property that is pledged. A citizen will still have to part with an apartment or house that is on a mortgage, even if he and his family have nowhere to live. Judicial practice shows that in this case the debtor does not have any benefits, even if minor children are registered in the apartment. In any case, the collateral property will be included in the bankruptcy estate for further sale.
Many individuals, before filing for bankruptcy in court, try to get rid of their existing property - they issue deeds of gift to relatives, and sell it to interested parties at a reduced price. During the consideration of the case, all transactions concluded by the debtor over the past 3 years are carefully checked by the manager. If during the audit it is proven that they are fictitious and that they have caused damage to creditors, the transactions can be canceled and the alienated property added to the bankruptcy estate.
But such transactions cannot be carried out with collateral property, because a citizen has limited ownership rights. Concluding any transactions is possible only with the permission of the bank, and no credit institution will give permission for the sale without full repayment of the loan by the borrower.
The only option that will allow the debtor to remain with the apartment or house is to agree with the bank to formalize debt restructuring and draw up a new debt repayment schedule.
In some cases, banks make concessions to borrowers and allow the property to be sold at market price. This is a more profitable option, because at auctions it is not always possible to sell property at a favorable price; bidders try to purchase objects for sale at the lowest cost. After an independent sale, the proceeds are credited to the bank account, and if there are enough of them, the loan agreement is considered closed.
Also, a potential bankrupt can keep the mortgaged property if the bank does not include its claims in the register of creditors' claims. But for this, the borrower must not be late on loan payments. And other creditors, except the bank, will not be able to demand the sale of this property.
The principle of selling movable collateral Another common object of collateral is vehicles that were purchased on a car loan. The debtor may be able to avoid repossession of the car if he can prove that this particular vehicle is the source of the family’s main income. For example, a citizen is registered as an individual entrepreneur, he has a small minibus and transports passengers.
But if the debtor is a problem borrower and has overdue loan payments, it will not be possible to avoid repossession of the car, even if this vehicle is the breadwinner of the family. According to the court's decision, the car will be described, assessed and sold at auction.
According to Art. 334-360 of the Civil Procedure Code of the Russian Federation, citizens cannot alienate the subject of pledge without the consent of the pledge holder (bank), unless another provision is specified in the agreement. In practice, banks never enter into an agreement with a client that contains a clause allowing the independent sale of collateral.
If the debtor independently manages to sell the car pledged by the bank, the creditor can file a lawsuit and declare the transaction invalid.
Procedure for selling property
According to the procedure for selling collateral in bankruptcy, there are two main methods of sale:
Standard. Using the priority rights of the secured creditor. Mortgage holders (banks) have a certain advantage over other creditors. They can achieve priority sale of the collateral and repayment of the debt owed to them. According to Federal Law No. 127-FZ, they can also choose another option to solve the problem - renounce their privileges and submit their claims together with other creditors. This option occurs quite often in judicial practice.
If the secured creditor does not wish to take advantage of his benefits, he has the right to participate in the meeting of creditors with voting rights. The number of votes of the secured creditor is determined in proportion to the stated claims.
The function of control and regulation is assigned to an arbitration manager appointed by the court. It is he who provides creditors with all the information about the progress of the insolvency proceedings of an individual.
Stages of the implementation procedure
According to the established rules and regulations of the law, if a potential bankrupt has collateral, it will be sold during the bidding process at the stage of bankruptcy proceedings.
The sale of the debtor's property occurs according to the following scheme:
The bankruptcy trustee makes an inventory and assessment of the citizen’s property, including collateral. Property is valued at market prices for similar properties. If the debtor does not agree with the price, he can contact an independent appraiser. Managers set a date and time for trading, and information about this is published in the public domain. After the court approves the provided inventory of property, the legislation of the Russian Federation establishes the deadline for conducting auctions - 2 months. The auctions are held electronically and anyone can participate. Participants must make a deposit of 5% of the original cost of the property. At the first stage of bidding, the price increases by 5-10% of the original value of the collateral. The winner will be the participant who offers the highest price for the exhibited object. If at this stage the auction does not take place, the manager appoints a second stage, and the cost of the object is reduced by 10-30%. If the goods are not sold at the second stage, a third stage of bidding is scheduled. This is where the buyer can purchase property at the lowest cost. All proceeds from the sale of collateral are used to satisfy the claims of creditors in accordance with the stated register of claims. The bankruptcy trustee draws up a report on the work done and sends it to the arbitration court for approval. Distribution of funds proceeds from the sale of collateral property occurs according to the following rules:
80% should be received by the mortgagee (bank). 15% goes to satisfy the claims of first and second priority creditors. 5/-% - to cover all legal costs.
Purchase of a collateral apartment owned by VTB Bank
Hello! I want to tell everyone my story about how I tried to buy collateral property (an apartment), and how they didn’t sell it to me.
I saw an advertisement on the notice board that an apartment was for sale (collateral property, a non-core asset of VTB). I called the sales department of collateral property of VTB Bank, they assured me that the apartment was for sale and there was no buyer at the moment, it was November 16, 2020, I said that I was ready to purchase this apartment for cash, the call center manager replied that I needed to contact the regional manager, and purchasing with your own funds is possible, and she sent me a business card of the regional manager.
Well, I think I’ll call him right now and agree on buying an apartment, I call and say that I want to buy an apartment for cash, I can make a deposit if you doubt that I won’t take it. To which he replied: we don’t take deposits, will you watch? I say: you can take a look. And then it hit him: I have a lot of work right now, a busy schedule, a lot of calls, I answer him that then I won’t look, I’ll buy it like that, when and where should I go to register? He tells me, wait, I’ll find out everything and call you back. I am waiting. There is no call.
I called myself and imagine what he told me: They say the announcement about the price reduction was not long ago, I may still sell this apartment at a higher price, but you sit and wait, if no one buys, then we’ll talk at the old price. I was just taken aback, I understood the hint, he wants to take money from me! Can you imagine! I call the call center again and say the apartment is for sale? Answer: Yes, I explain the situation, what their regional manager said, the Operator replied, you can write a purchase application yourself and send it to us by mail, I immediately wrote and sent my application.
I wait three days, call the sales department to find out if they considered it or not? They answer that we are considering, there is one statement in the database, from Rodion Aleksandroaich, I say this. As of November 16, 2020, I was the only one willing to buy this apartment! But I think thank God! I'm waiting for the call, I've got the money ready. 16 days have passed, today is December 2, 2020. A woman calls, introduces herself as the regional manager and says you have been refused! Can you imagine they refused to sell me an apartment for my money! Not with a mortgage, but with your own money!
I couldn’t believe my ears, I called the call center and asked if my application had been considered, the answer: it is in the database, but to whom to sell the apartment, the regional manager decides, the same one who hinted to me that maybe he would sell this apartment at a higher price. There is obvious deception by the regional representatives! Now I will take measures to organize an additional investigation of my situation and generally check the activities of regional representatives and the sales department, I will draw up an appeal to the Central Bank and government agencies. If anyone has encountered a similar situation with VTB, I suggest we act together.
