Weakening of mortgage – resolution of the Supreme Court

If, as a result of bankruptcy proceedings, an obligation that has been secured by a mortgage is discharged, but the real estate serving as collateral belongs to an entity other than the one who incurred the obligation, the mortgage will expire. In such a situation, the creditor will not be able to satisfy themselves from the previously encumbered real estate. These conclusions were reached by the Supreme Court in a resolution of a panel of seven judges dated 4 April, 2023 (case no. III CZP 11/22). Although this decision was based on bankruptcy law before 2016, it can be almost entirely applied to the current legal regulations.

The discharge of obligations in bankruptcy proceedings can only occur when the procedure is conducted against an individual. The discharge, except in exceptional situations, takes place only after the debtor has implemented a creditors’ repayment plan.

A mortgage creditor will have to take into account that if the real estate encumbered by the mortgage is not owned by the debtor, in the event of the debtor’s bankruptcy, the time for the creditor to obtain satisfaction from the real estate will be limited, only until the discharge of the debtor’s obligations – the creditor will have to demonstrate significant activity in enforcing their claim and take action, as quickly as possible.

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