Certain debt relief agencies refuse to take on debtors who are still co-owners of an unsold home where the ex-spouse lives. This group of debtors is then advised to first “distribute” (i.e. sell it to a third party or transfer the share to the ex-partner with discharge from the mortgage obligation). This often does not work, for example because the house is under water and the bank does not want to cooperate. But even with excess value, there is no guarantee that the bank will cooperate. Banks don’t just let a debtor who has co-signed for the mortgage go. Not even if the person is deeply in debt and no longer lives in the house.

Bank has ironclad legal position

Legally, banks are in a strong position because of the way mortgage law is regulated in the Netherlands. Banks can refuse “cancellation” of the mortgage so that a home cannot be sold with undervalued property. The bank may prefer that the house be occupied by the debtor’s ex-partner, even if that ex-partner is a bad payer. The question is whether a debtor can enforce distribution of the property in court if the bank does not cooperate. The debt relief agency then sees this as a problem that the debtor just has to find a way out of and otherwise: no debt relief and therefore no WSNP. The consequence of this policy of (some) debt assistance agencies is that a specific group of debtors is actually excluded from debt assistance for a long period of time – the preliminary process for admission to the WSNP. The question is whether this policy is (legally) justified. Is there anything that can be done about it?

Court: the WSNP is also open if the house remains unsold

The Amsterdam Court of Appeal issued a ruling (in Dutch) on this issue on October 4, 2016. This is the crucial consideration in the Court’s judgment: In light of the foregoing, [ge├»ntimeerde] and ABN Amro correctly argued that [appellante] argues on inadequate grounds that it cannot be admitted to the debt restructuring scheme due to the fact that it is co-righted to a leasehold right that is encumbered by a mortgage. After all, the Bankruptcy Code expressly provides for how such encumbered property should be included in the debt restructuring. With that, the grievances in the main appeal fail insofar as [appellante] bases them on the fact that it is not possible for her to be admitted to the debt rescheduling arrangement.”

It says here, in plain English, that the debt relief agency that denies access to a debtor with an unsold house is wrong: the debtor can simply be admitted to the WSNP, even though the house has not yet been divided, and the law then provides a regulation on how to proceed with the house. The arrangement in the Bankruptcy Code breaks the bank’s power to stop cancellation of the mortgage. Apparently, the requirement that the home be divided or sold first, which is made by the debt relief agency, should not be made by the debt relief agency at all, according to the Court.

New ammunition against reluctant debt relief agencies

This ruling may not immediately change the policies of debt relief agencies. One sometimes wonders if some debt relief agencies (er)know the Bankruptcy Act or are mainly concerned with their own policies and criteria (selecting at the gate). But the court does encourage debtors to persevere and keep going for admission to WSNP. A disadvantage of the ruling is that the debt counselling agency in question is not itself a party: the agency is not directly forced through this procedure to still initiate the debtor’s amicable process. However, the debtor is given arguments to stand up to a negative admission decision by the debt counseling agency. Debtors with unsold property occupied by the ex-partner should certainly work on objection and appeal procedures to force debt relief agencies to grant admission to debt relief in these types of cases as well.

posted by Marius Hupkes

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