Can an individual entrepreneur lose their apartment in bankruptcy?

A sole proprietor (FOP) is, by legal status, a natural person engaged in entrepreneurial activity. Accordingly, the bankruptcy procedure for a FOP largely mirrors that of a regular individual (non-entrepreneur). The key distinction is that before filing a bankruptcy petition, it is generally recommended that the FOP officially terminates their entrepreneurial activity (closes the FOP), so that the procedure applies to a former FOP.

One of the most important practical questions for an indebted entrepreneur is: will their home be taken during the bankruptcy process?

The law states that a debtor’s sole residence cannot be forcibly sold — provided that it does not exceed a set area (60 m² for an apartment or 120 m² for a house) and that it serves as the debtor’s place of residence. This means that if a FOP owns a single small apartment, it will be excluded from the liquidation estate and will not be sold to pay off debts. Court practice has confirmed the application of this rule in favor of debtors.

However, there are nuances. If the entrepreneur owns multiple properties or a very large home, anything beyond the scope of the "sole residence" may be liquidated to cover debts. For example, a second apartment, a summer house, or commercial property will be included in the liquidation estate by the insolvency practitioner. Likewise, luxury items or valuable personal belongings are not protected — they will be sold, even if they are the debtor’s personal possessions.

Important: home protection does not apply if the property is mortgaged. In such cases, the creditor (typically a bank) has a priority right to seize the property. Notably, until recently, Ukraine had a moratorium on the foreclosure of sole residences under foreign currency mortgages, but it was lifted in April 2021. Today, if your apartment is mortgaged, the bank can theoretically repossess it to recover the debt. However, bankruptcy proceedings offer a chance to preserve mortgaged property — provided the debtor acts in a timely manner by applying to the court. Within the bankruptcy procedure, a debt restructuring plan for the foreign currency loan can be approved: the debt is adjusted to the market value of the property, repayments are extended for up to 15 years, and the remaining debt may be written off. Therefore, a FOP has a legal tool to protect against the immediate loss of their home, even if it is mortgaged — the key is to act proactively.