Ministry pondering new law to help small debtors clear their debts

A bill is in the making in Latvia over insolvency for small debtors who can't repay what they owe. There are about 40,000 such debtors in Latvia, according to the Finance Latvia Association, which says that debts shouldn't be pardoned fully under the proposed law, instead requiring even the small debtors to cover 10 to 15% of the sum.

The bill in question is currently being reviewed at the Justice Ministry. Laila Medina, Deputy State Secretary at the ministry, said that currently only people who owe more than €5,000 can apply for insolvency, while the bill seeks to introduce a procedure for people who earn the minimum wage and whose debts are from €2,000 to €5,000

"There are many people to who the current law is not available [..]. That's why we're offering a new bill for people with very low income so that they can solve their financial problems. If the person fits the required criteria, their debts would be lifted. It could be done within six months after they've applied at a notary's," she said, adding that there'd be a requirement for these people to study basic finance know-how as part of the process.

There are currently 16,000 small debtors with banks and leasing companies, according to Andrejs Kurbatskis, an economist at the Bank of Latvia. He said that this initiative would help people to become part of the economy again and to reduce the shadow economy in the long term. To protect the system against abuse, there'd be checks including making the procedure a limited one-time thing.

Edgars Pastars, a lawyer at the Finance Latvia Association, said that together with the clients of non-bank or payday lenders there are about 40,000 people to who the law would apply. 

He said that the law – which he referred to as "a small insolvency process" – should allow people to keep some movable property, such as a small car, and that people should be obliged to cover 10 to 15% of the debt sum. He likewise said that it'd be imperative that after the proceedings people can bar themselves from receiving further loans. 

The Justice Ministry says that the new law is to be sent for debate at the Latvian parliament in the fall and, if adopted, could become effective January 1, 2020. 

For someone to apply for this type of insolvency proceedings, they would have to pay €3.56 for notary costs and €100 for their application to get reviewed.

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