Juridical Mortgage Survives Bankruptcy Proceedings

Judicial mortgage

Under the Estonian Civil Procedure Code, a court action can be secured by a judicial mortgage, in order to ensure that later the debtor has sufficient property for the judgment to be enforced. Judicial mortgage is a type of real pledge, and for the purpose of the enforcement proceedings this has similar right as any other mortgage. Claims secured by pledge also have preference in bankruptcy proceedings. If the claim of a creditor is recognized by the court in frames of general civil proceedings, then the judicial mortgage remains in place, and in course of bankruptcy proceedings the creditor is deemed to have a claim secured by a pledge.

Claims in bankruptcy proceedings

According to the Estonian Bankruptcy Act, if the debtor has been declared bankrupt, then any claims can be filed against the debtor only in course of bankruptcy proceedings. Any court action initiated against the debtor before the debtor was declared bankrupt is refused to be heard by the court, unless a court of the first instance has already passed a decision concerning the claim, notwithstanding of the fact that the decision is not yet in force. Hence any court action processed for the first time by a court of the first instance is stopped upon declaration of the debtor bankrupt. Based on the previous practice, creditors who had not gained a decision of the court of the first instance in their actions against the debtor lost their judicial mortgages if the debtor was declared bankrupt. The court proceedings that already have passed through the first instance are continued. This was because of the Civil Procedure Code stating that the refusal of the action to be heard results in lifting of the judicial mortgage that was established in order to secure the claim. In the same time, if the court of the first instance had already passed a resolution concerning the claim, even if such resolution was not yet in force and/or this was appealed, the claimant who held judicial mortgage retained the mortgage and the...

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