Section 213.26. Features of the sale of a citizen’s property

Bankruptcy of individuals has officially become possible since the fall of 2015. It applies to those debtors who have debts that they are unable to pay. Any individual can legalize himself as bankrupt, even if there is no property to pay off debts.

For some people facing serious financial difficulties, bankruptcy is the only way out. During the procedure, a person is completely freed from debt, he can return to normal life and not worry about his future. However, the procedure also has a number of negative aspects. Let's take a closer look at all the pros and cons of bankruptcy.

What can they take away?

To put it simply, they can take away everything else, namely:

• Debtor's car.
• Real estate that is not the only dwelling (cottages, apartments, houses, etc.).
• Real estate that is the only residence, in cases where it is the subject of a mortgage, in accordance with the provisions of Federal Law dated December 29, 2004 N 194-FZ.
• Business (funds and property of enterprises owned by the debtor, shares and interests in authorized capital, shareholder securities, etc.).
• Jointly acquired property of the spouses, more details here (in this case, 50% of the money from the sale will be returned to the bankrupt spouse).

Some categories of citizens are legally protected even from the sale of a mortgage.

For example, the mortgaged housing of military personnel who continue to serve in the armed forces does not fall into the bankruptcy estate, since the state pays the mortgage for the debtor in uniform. Accordingly, debts on a military mortgage do not arise, and the bank that provided it is not included in the register of creditors. To determine exactly which assets can be included in the bankruptcy estate and which can be retained, a borrower should contact a competent bankruptcy attorney.

What does it mean to sell property during bankruptcy?

The sale of a citizen’s property is the organization of auctions for the purpose of selling property and repaying debts to creditors using the proceeds. After the money is distributed, debts are repaid in full or in part. If any debt remains outstanding, it must be written off.

The decision to proceed to the sale of property is made by the arbitration court. The procedure is scheduled for 6 months and can be extended as necessary until the property is fully sold and debts are paid off.

The sale of property is ordered by the court in the following cases:

• the restructuring plan was canceled due to failure to comply with the debt repayment schedule;
• no restructuring plan has been submitted;
• creditors did not approve the restructuring plan.

After making a decision on implementation, the financial manager sends a notice to creditors explaining the procedure for filing debt claims.

Example. Midori Toredo LLC applied to the Arbitration Court of the Novosibirsk Region to declare Artem Sergeevich Nacharov insolvent. The court began a debt restructuring process against him. The citizen's debt to the only creditor amounted to RUB 33,855,377.80. At the first meeting, creditors voted against approval of the restructuring plan because the debtor did not prepare and submit a document for consideration by the financial manager and Midori Toredo LLC. The financial manager compiled a list of the citizen’s property. Based on the results of the preliminary assessment, it was concluded that the existing assets are not enough to cover debts for three years. The debtor’s full solvency in the current situation cannot be restored, and therefore it is necessary to organize an auction and sell the property in order to partially repay debts to creditors. The arbitration court recognized Nacharov A.S. bankrupt and opened a procedure for the sale of property against him (Decision of the Arbitration Court of the Novosibirsk Region dated October 28, 2019 in case No. A45-8306/2017).

What property is subject to sale?

The most pressing question for all debtors is what property can be sold in the event of bankruptcy.

Bankruptcy law includes in the bankruptcy estate all property that the debtor has on the date of his bankruptcy, as well as that identified or acquired after this date, but there are exceptions to this rule.

Property that cannot be foreclosed on in accordance with civil procedural legislation is excluded from the bankruptcy estate, namely:

• the only suitable housing for a debtor citizen (except for the subject of a mortgage);
• a plot of land if the only suitable housing is located on it;
• items of ordinary home furnishings and household items and personal items;
• things necessary for the professional activities of the debtor citizen;
• used for purposes not related to business activities, breeding, dairy and working cattle, deer, rabbits, poultry, bees, feed necessary for their maintenance before pasture (going to the apiary), as well as outbuildings and structures necessary for their maintenance;
• seeds needed for the next sowing;
• food and money for a total amount not less than the established subsistence level of the debtor citizen himself and his dependents;
• fuel necessary for the family of a debtor citizen to prepare their daily food and heat their living quarters during the heating season;
• means of transport and other property necessary for the debtor citizen in connection with his disability;
• prizes, state awards, honorary and memorable signs awarded to a debtor citizen.

However, that's not all.

At the reasoned request of the debtor, property worth no more than 10 thousand rubles, which may be foreclosed on, can also be excluded from the bankruptcy estate. And if this is necessary to maintain the normal level of existence of the debtor, in exceptional cases the court may exclude property of greater value from the bankruptcy estate, for example, if the debtor requires expensive treatment.

In addition, in paragraph 1 of the Resolution of the Plenum of the Supreme Court of the Russian Federation dated December 25, 2018 N 4 “On some issues related to the peculiarities of the formation and distribution of the bankruptcy estate in bankruptcy cases of citizens” it was explained that funds in the amount of subsistence are excluded from the bankruptcy estate minimum for the debtor himself, as well as his dependents.

Issues regarding the exclusion or non-inclusion of funds in the bankruptcy estate in the amount of the subsistence minimum are resolved between the financial manager and the debtor out of court. In practice, the financial manager either issues funds from the bankruptcy estate in the amount of the subsistence level to the debtor on a monthly basis, or sends a notice to the debtor’s employer, in which he explains how much the debtor can receive personally and until what period this notice is valid.

In addition, the bankruptcy estate cannot include funds that are intended to support other persons, for example, benefits and alimony for children, a survivor’s pension assigned to a child, etc.

If a dispute arises between the debtor and the financial manager regarding the exclusion of property from the bankruptcy estate, you can apply to the court to resolve the disagreement. In this case, the court will resolve the dispute and issue a ruling, which can also be appealed.

Stages of selling a citizen’s property during bankruptcy

After making a decision to sell the property, you will need:

1. Form a bankruptcy estate.
2. Adjust the bankruptcy estate by excluding part of the property.
3. Assess a citizen's property.
4. Approve the sales procedure at the meeting of creditors and in the arbitration court.
5. Publish an advertisement for auctions for the sale of property.
6. Conduct auctions.
7. Pay off debts to creditors.
8. Go to court to complete the sale of property.

Let's take a closer look at each stage of the restructuring procedure.

Stage 1 – Formation of the bankruptcy estate

After the decision on bankruptcy is made, the financial manager forms the bankruptcy estate of the citizen.

The bankruptcy estate is all movable and immovable things, money, securities, shares in the authorized capital of the company that the debtor has on the date of declaring him bankrupt.

In order to form the bankruptcy estate, the financial manager makes an inventory of the property. Most often, the list includes an apartment, a car, a garage, deposits, expensive household appliances and furniture.

Stage 2 – Adjustment of the bankruptcy estate

Part of the property may be excluded from the bankruptcy estate. To do this, a citizen must submit a petition to the arbitration court.

The court must exclude the following property from the bankruptcy estate:

• property worth up to 10,000 rubles;
• the only housing of a citizen and his family members with a plot of land;
• personal items (clothing, shoes, hygiene products);
• items of ordinary home furnishings (refrigerator, TV, microwave);
• deer, rabbits, birds and other livestock raised for personal use;
• Food;
• seeds for planting;
• fuel needed for heating and cooking;
• disabled person's vehicle.

The debtor is also allocated funds in the amount of the subsistence minimum.

A specific list of property excluded from the bankruptcy estate is approved by a court ruling.

Important! By law, the financial manager must analyze all transactions made by a citizen over the past three years. Suspicious transactions are challenged in court with the aim of returning the property to the bankruptcy estate.

Stage 3 – Valuation of property in case of bankruptcy of an individual

Property included in the bankruptcy estate must be valued by an independent appraiser. This is done in order to later sell it at auction. The starting price is determined by the market value determined in the appraisal report.

The property valuation can be carried out by the financial manager independently. Lenders have the right to decide to engage an independent appraiser. In this case, the assessment is carried out at their expense.

Stage 4 – Approval of the procedure for the sale of the debtor’s property at a meeting of creditors and in the arbitration court

A month after the inventory and assessment of the citizen’s property, the financial manager prepares a sales procedure.

The order must contain the following information:

• composition of property;
• starting price;
• timing of the auction;
• auction organizer;
• form of bidding (open or closed);
• rules for reducing the starting price;
• terms and conditions of the deposit;
• conditions for registration on the electronic platform;
• application rules;
• rules for identifying the winner.

The regulation on the sale of the debtor's property in bankruptcy is submitted to the meeting of creditors, which decides to apply to the arbitration court for the purpose of its approval. After approval of the procedure, the financial manager begins to implement it.

Stage 5 – Publication of the tender announcement

As a rule, the organization of trading is carried out by a financial manager who can do this independently without the involvement of a specialized organization.

Before starting the sale of property, the financial manager must publish a notice about it.

You should know! Auctions for the sale of bankrupt property are held on electronic platforms. We invite you to familiarize yourself with the main resources with which financial managers cooperate: Fabrikant.ru, EFRSB, Sberbank-AST.

The announcement is posted on several information resources:

• EFRSB website;
• Kommersant newspaper;
• newspaper at the location of the debtor's property.

Publication is paid for by the debtor.

The ad tells you what property will be sold and at what price. It explains how to apply for participation in the auction, what the size of the deposit is, and when the auction will begin.

Stage 6 – Bidding

Citizens and organizations who decide to take part in the bankruptcy bidding procedure must register on the electronic platform. From the start date of trading, interested parties submit applications and pay a deposit in the amount determined by the sales procedure. Documents for participation in the auction are submitted before the completion date.

After the auction is completed, the financial manager determines the winner and concludes a purchase and sale agreement with him. After the funds are transferred to the debtor's account, the sold property is transferred to the buyer.

Stage 7 – Payment of debts to creditors

The funds received from the sale are distributed among all the citizen’s creditors.

The order of payment of debts is as follows:

1. Current alimony payments, financial manager's remuneration.
2. Communal payments.
3. Debt included in the register of creditors' claims: alimony, contractual obligations, tax payments.

First, the current debt is repaid, that is, the one that appeared after filing an application to declare a citizen bankrupt. Payments are then made to creditors included in the register of creditors' claims.