The aim of the new framework is to encourage individuals' who have, or have had, the status of a person in need or low income, renewal of solvency. It is planned that this will encourage individual participation in the economic environment.
Until now, 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, in order to apply, they must cover the State fee, as well as the payment of the deposit for the insolvency proceedings of the natural person.
There are a significant number of individuals in the country who do not have sufficient resources to cover their debts by their own forces, the authors of the draft law in the Ministry of Justice (TM) write.
The draft law is designed for those in financial difficulties who wish but are unable to cover their debts arising from their consumer lending agreement.
The new framework covers indebtedness of a total size exceeding one national minimum monthly salary but not exceeding EUR 5,000.
The aid covered 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. The natural person must also have the status of a person in need or low income for a period of at least three months prior to the application.
The new regulation will not apply to debtors who have secured creditors (creditors whose claims rights against the debtor have been secured by commercial pledge, a mortgage registered in the Land Registry or a ship register on debtor or third party property), as well as to natural persons who have property outside Latvia. Similarly, the release of a natural person from debt will not apply to those who have a social security obligation to employees.
The law includes a provision that each natural person is entitled to use the mechanism only once.
In the event of a person failing to comply with the obligations and restrictions imposed on it, or the application providing false information leading to the unjustified release of a natural person from his or her debt, any indebtedness in force on the date on which the application was made, on the basis of which the natural person was released from the debt, will be restored.
The new law provides that the person must be active throughout the process:
- the person will have to make an application for release and submit it to a sworn notary;
- refrain from actions which aggravate the situation of the person;
- during the examination of the application, classes of financial literacy will be provided by the State Employment Agency.
The new law and the related amendments will enter into force on 1 January 2022.