Sale of Mortgaged Housing Owned by Bankrupt Debtors
The procedure for distributing proceeds from the sale of mortgaged housing owned by bankrupt debtors has been changed (Federal Law No. 62-FZ dated March 23, 2026, “On Amendments to the Federal Law ‘On Insolvency (Bankruptcy)’”).
The new rules establish the order in which funds received from the sale of pledged real estate are to be distributed. First, the sale proceeds will be used to cover the costs of the auction and the preservation of the property.
The remaining amount will be distributed as follows:
▪️ 80% — to the secured creditor toward repayment of the mortgage debt;
▪️ 10% — to first- and second-priority creditors, if the debtor’s other assets are insufficient;
▪️ another 10% — to the debtor, up to the amount of the down payment and previously made mortgage payments.
If any funds remain after these distributions, they must also be returned to the debtor.
At the same time, the law gives the court the right to reduce the amount to be transferred to the individual if it substantially exceeds the family’s reasonable housing needs.
