Government supports draft law by the Ministry of Justice on the release of a natural persons from debt 14.04.2020

On Tuesday, April 14, the Cabinet of Ministers supported the Law on Debt Relief of Natural Persons developed by the Ministry of Justice and a package of six related draft laws, which are intended to provide an opportunity for low-income and low-debt individuals to get rid of such debts arising from a consumer credit agreement within the meaning of the Consumer Rights Protection Law. 

Minister of Justice Jānis Bordāns: “Currently, the insolvency proceedings of a natural person included in the Insolvency Law are relatively expensive and are not applicable to persons with debts up to 5,000 euros. Thus, low-income persons do not have the opportunity to legally settle their solvency problems. Therefore, the release of a natural person from debt provided for in the new law is significantly different from the course of the insolvency proceedings included in the Insolvency Law. In addition, it should be taken into account that the envisaged new mechanism is aimed at providing support only to persons residing in the Republic of Latvia who have been granted the status of needy or low-income person during the period specified in the new law before submitting the application. The draft law stipulates that the costs of the debt repayment process are covered from private funds and this process will not have a negative impact on the state budget. We cannot guarantee that those who are currently stuck in a swamp of payday loans will not get back into it, but it is our duty to give them a chance to get out of it.”

The new regulation will be applicable to a specific legally defined group of natural persons, starting from indebtedness in the amount of two minimum monthly salaries up to 5,000 euros, which may be formed only by certain types of indebtedness. An application for debt relief will be assessed by a sworn notary, but a natural person will be required to take financial literacy courses before examining the application.

Debt relief will only be available once, and natural person insolvency proceedings will be available only after ten years.

The draft law stipulates that a complaint regarding the actions or decision of a sworn notary will be considered by a court. Also, a new solution in the field of insolvency in Latvia is currently being transferred to the jurisdiction of the court - the possibility also to cancel the debt relief applied to the debtor in certain cases.

The new regulation is expected to enter into force on 1 January 2021.

The draft laws are available on the website of the Cabinet of Ministers and will still have to be adopted by the Parliament.


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