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Russian Bankruptcy ... and Unconstitutional Homestead Exemption?!

posted by Jason Kilborn

BankZapadnyiI've finally finished my paper on the new Russian personal bankruptcy law (comments welcome), which is slated to go into effect on October 1 of this year. One side story from that paper will give a real chuckle to lawyers from Texas, Florida, and the other states with unlimited homestead exemptions. It turns out that the Russian Constitutional Court has been battling for years with the legislature about the unlimited exemption in "residential premises"  that represent the debtor's single suitable place of permanent abode. The Court has held this unlimited exemption to be unconstitutional at least twice, in 2007 and then again in 2012, yet the legislature continues to ignore these rulings and leave the law as is.

In the context of a case involving a 900 square meter apartment, the Court in 2007 concluded that the unlimited homestead exemption "disproportionately limited the creditor's rights" and was an "unfair, inadequate, unacceptable limitation on constitutional rights" to protection from the courts (!). The Court was especially concerned that this exemption was subject to abuse by debtors who might run up debts and then invest their money in a high-value exempt home (who would do such a thing?). In the 2012 case, the Court expressed its frustration with the legislature's ignoring its multiple earlier rulings on the "arbitrary" homestead exemption. It seems to have concluded that protecting anything more than the debtor's absolute minimum subsistence living space (about 18 square meters, as I understand it) is a violation of creditors' rights.  Wow.

I seriously wonder if the Constitutional Court will strike down the new personal bankruptcy law as a violation of creditors' rights, especially because it demands (theoretically) less of debtors than most European personal insolvency regimes. Time will tell ...

Russian bank image courtesy of Marina Zezelina / Shutterstock.com

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