Insolvency law revised

RIGA - Saeima’s Economic, Agricultural, Environmental and Regional Policy Committee on July 14 reached agreement on borrowers’ insolvency provisions in the new Insolvency Law, reports news agency LETA. The law will now provide that, if a borrower’s income is sufficient to cover at least 50 percent of total liabilities remaining after the completion of the bankruptcy procedure (the sale of the mortgaged property), the insolvency process will continue for one year.
If a borrower is unable, for reasons beyond his or her control, to pay the remaining debts, those borrowers who have sufficient income to cover at least 35 percent of their total liabilities after the bankruptcy procedure will be given two years to settle their liabilities.

Debtors with enough income to cover at least 20 percent of their liabilities after the bankruptcy procedure will be given three years to settle their remaining debts after they are declared insolvent.
Additionally, if a borrower’s total liabilities do not exceed 100,000 lats (142,800 euros), the moment he or she is declared insolvent, one-third of the debtor’s income, but no less than one-third of the official minimum monthly wage, will be used to cover that person’s liabilities to the lender for two years after the declaration of insolvency.

President Valdis Zatlers in June refused to sign the earlier piece of legislation into law, instead returning the Insolvency Law to the Saeima for a repeated review. In his comments, he said that the law, originally passed on June 17, would apply the same provisions to persons with debt liabilities of hundreds of thousands of lats to persons whose debt liabilities are much smaller, and who, for instance, took out their loans for the purchase of an apartment or home that they now live in. The law must provide for different treatment of such borrowers and persons who took out loans for property speculation.
The president also said that it had not been calculated yet as to what effect the new Insolvency Law would have on the state budget, the economic situation and the lending process in the country.

Thirdly, the public debate so far only analyzed what effect the new law would have on banks, but not on borrowers. Finally, the current version of the law suggests that persons who are ruled insolvent would seek to declare as small incomes as possible, therefore, a new provision should be introduced in the law that would provide for borrower supervision by the State Revenue Service or another state agency.