Canceled loans for destroyed housing and cars: legal grounds, procedure and risks for borrowers

The full-scale war has led to the massive destruction of private property of Ukrainian citizens - houses, apartments, cars. Many of them were purchased on credit, and a logical question arises after the loss of the collateral: whether it is possible to cancel loan obligationsIf the property is completely destroyed or stolen?

This article explains, when the bank can write off a loanWhat documents need to be collected, how legislative mechanisms work, and what the borrower should do to avoid debt claims.

1. Does the law provide for the cancellation of loans due to the destruction of collateral?

Ukrainian law does not contain an explicit provision that automatically writes off a loan in the event of the destruction of collateral.
Formally, the loan agreement continues to be in effect even if:

• a mortgaged apartment or house was destroyed;

• a car that was pledged as collateral is destroyed or stolen;

• the property became unusable due to the hostilities.

However, there are mechanismsThe company's debt relief programs allow it to write off or restructure its debt:

1. Article 617 of the Civil Code of Ukraine - exemption from liability for insolvency if it arose due to force majeure (war).

2. Article 349 of the Civil Code of Ukraine - termination of ownership in case of destruction of property.

3. Article 593 of the Civil Code of Ukraine - termination of the pledge in case of loss of the item.

4. The Law on Consumer Lending - a ban on demanding additional payments in circumstances beyond the borrower's control.

5. Mechanism force majeureThe project was approved by the Ukrainian Chamber of Commerce and Industry.

These rules do not automatically write off the debt, but they do give legal basis request its cancellation or revision.

2. The position of banks: why are they in no hurry to write off loans?

Banks usually take a conservative stance and continue to accrue debt, explaining that:

• the agreement does not contain grounds for automatic write-off;

• Although war is a force majeure, it does not exempt from fulfilling monetary obligations;

• compensation for the destroyed property may be received in the future by the state or an international mechanism.

However, banks are obliged to:

• to stop the accrual of fines and penalties (in accordance with Law No. 2120-IX);

• consider applications for restructuring;

• take into account the individual circumstances of the borrower when settling the debt.

In many cases, banks agree to loan write-offif the borrower proves that the collateral has been completely destroyed.

3. When can a loan be canceled in full?

The loan can be canceled if several conditions are met:

1. Complete destruction of the mortgaged property or collateral

It must be documented:

• the act of the State Emergency Service;

• a certificate from the military administration;

• an inspection report of the destroyed property;

• data from the Register of Damaged and Destroyed Property (Action).

2. Lack of possibility to restore property

The Bank analyzes:

• technical condition;

• expert evaluation;

• level of destruction (50-100%).

3. No fault of the borrower

For example, if the car was destroyed by a munition, and not due to the owner's gross negligence.

4. Borrower's application in writing

The bank does not write off loans "automatically". An official procedure is required.

4. What documents are required to cancel a loan?

The borrower must collect the most complete package of evidence possible:

For real estate:

• an inspection report from the local council or military administration;

• an act of the State Emergency Service of Ukraine on fire or destruction;

• photographic materials;

• a certificate from the Register of Destroyed Property;

• documents of ownership;

• mortgage agreement.

For the car:

• police certificate of destruction or theft;

• a certificate from the service station about the impossibility of repair;

• an expert report on total damage;

• pledge agreement.

For the bank:

• application for cancellation of loan obligations;

• a request to close the credit file;

• a package of evidence.

5. Does compensation from the state or a future international fund have an impact?

Yes. If the borrower receives a refund:

• compensation may be sent to the bank;

• the loan can be closed at the expense of these funds;

• but the debt can be written off by the bank even before compensation if the property is recognized as dead.

The question of the future International compensation mechanism (the project of confiscated assets of the Russian Federation) will also be taken into account, but it is not yet fully operational.

6. What should the borrower do if the bank refuses to write off the loan?

There are several ways to protect yourself:

1. Submit a second application with additional evidence.

Sometimes the bank changes its position after submitting an expert opinion or additional acts.

2. File a complaint with the NBU.

The regulator monitors banks' compliance with the law.

3. Go to court.

The court practice already contains cases when:

• loan obligations are terminated due to the destruction of the mortgaged property;

• the bank has no right to demand repayment of the loan if there is no collateral and no access to the property.

7. Why is legal support important?

Banks often deliberately delay the processing of applications or require documents that the borrower cannot physically obtain.
A lawyer helps:

• correctly prepare a package of documents;

• negotiate with the bank;

• prepare complaints to the NBU;

• formulate a legal position in court;

• achieve real debt relief.

Conclusions.

Cancelation of loans for destroyed housing or a car is real mechanismbut it is not automatic. The borrower must collect the relevant evidence, submit an application to the bank and, if necessary, defend their rights in state authorities or court.

With properly executed documents and legal support, a significant portion of debts can be written off.

If you need help preparing an application, negotiating with the bank, or litigating, our team will provide full legal support until the loan is closed.