On Tuesday, 15 June, the Saeima adopted in the final reading a new law on debt relief for natural persons, as well as relevant amendments to other laws.

The purpose of the new regulatory framework is to promote the renewal of solvency for individuals who have or have had the status of a person in need or a low‑income person, and also to improve their financial literacy. The new Law establishes principles and procedures for providing debt relief for natural persons who have entered into consumer lending agreements for which the performance of obligations is due. This is supposed to encourage these individuals’ participation in the economy.

Previously, for persons unable to cover their debts, the only collective procedure available was the insolvency proceedings of a natural person. In order to declare the insolvency proceedings of a natural person, the person must have debts of at least EUR 5,000 and, to apply, they must cover the state fee and make a deposit payment for the insolvency proceedings. According to the explanatory note of the Law, drafted by representatives of the Ministry of Justice, a large number of individuals in the country do not have sufficient resources to cover their debts.

The Law was drafted to assist people in financial difficulties who wish but are unable to cover their debts due to be paid arising from a consumer lending agreement. The new Law covers debts of a total size exceeding one national minimum monthly salary, but not greater than EUR 5,000.

The aid provided by the Law is intended for natural persons who have been taxpayers of the Republic of Latvia for the last 12 months or have had a declared place of residence in Latvia for the last 12 months and receive social payments from state or local government budget funds. In addition, the natural person must have had the status of a person from a household in need or a low‑income household for at least three months prior to the application.

Moreover, over the last 12 months, the average monthly income of the natural person must be less than the minimum monthly salary in Latvia, excluding the sums that are exempt from debt collection in accordance with the Civil Procedure Law.

The new regulation will not apply to debtors who have secured creditors (creditors whose right to claim against the debtor or a third person is secured by a commercial pledge or a mortgage on the property of the debtor or a third party registered in the Land Register or Ship Register) or to natural persons who own property outside Latvia.

Similarly, debt relief for natural persons will not apply to those who have social security payment obligations to employees.

The Law includes a provision that each natural person may only use the mechanism once.

If a person fails to comply with the obligations and restrictions imposed on them, or their application includes false information leading to unjustified debt relief, any indebtedness in force on the date when the application was made, on the basis of which debt relief for the natural person was provided, will be restored.

The new Law expects active engagement from the person throughout the entire process. The person will have to prepare an application for debt relief and submit it to a sworn notary, refrain from actions which aggravate the situation of the person, and conform with the requirements set by the sworn notary. In addition, during the examination of the application, the person will have to take classes on financial literacy, provided by the State Employment Agency.

According to the Law, the application must be submitted to a sworn notary whose office is located in the same operational district of the regional court as the declared place of residence of the debtor, or the place of residence of the debtor, if they do not have a declared place of residence.

The Saeima also adopted amendments to the Civil Procedure Law to ensure judicial review of debt relief for natural persons and to provide oversight over the activities of sworn notaries. Additionally, the Saeima adopted in the third reading amendments to the Law on Insolvency, Law on the Enterprise Register of the Republic of Latvia, and the Notariate Law.

The new Law and the related amendments will enter into force on 1 January 2022.

Saeima Press Service