On Monday, 26 July, while reviewing the new Insolvency Law, the Saeima changed provisions related to natural persons repaying their liabilities. The period of settling their debts will be from one year to three and a half years, depending on the natural person’s income.

“The Saeima supported the principle suggested by the relevant committee, namely, that the duration of the insolvency process will depend on people’s income and their ability to pay off their debts,” explained Mr. Vents Armands Krauklis, Chairman of the Economic, Agricultural, Environmental and Regional Policy Committee of the Saeima.

He expressed his conviction that the solution is fair although, admittedly, banks will have to shoulder the bulk of responsibility in the insolvency process. Mr. Krauklis pointed out: “That will encourage banks to seek alternative solutions and to reach reasonable agreements with people who are facing financial difficulties, so that declaring insolvency remains the last resort when all other options have been exhausted.”

Borrowers who deem that their income will be sufficient to repay at least 50% of total liabilities remaining after completing the bankruptcy procedure will be given one year to settle their liabilities.

Debtors with enough income to repay at least 35% of total liabilities remaining after completing the bankruptcy procedure will be given two years to settle their debts. If a borrower’s income is sufficient to repay at least 20% of his or her liabilities, the insolvency process will continue for three years after the day he or she is declared insolvent.

In other cases, the insolvency process will continue for three years and six months. During this time, each month a third of the debtor’s income, but no less than a third of the official minimum monthly wage, will be withheld to repay that person’s liabilities to the lender.

A specific provision of the Law will regulate the repayment of liabilities that do not exceed LVL 100,000. In this case, each month a third of the debtor’s income, but no less than a third of the official minimum monthly wage, will be withheld to repay that person’s liabilities to the lender for two years.

The liabilities include only the basic loan, not fines, penalties, or overdue interest charges. The liabilities include the agreed loan interest which is due until the day when insolvency is declared, but not higher than 6% per year.

The Law is scheduled to come into force as of 1 November 2010. If a person’s insolvency process begins by 31 October 2010, the person, after the sale of the property, will have the right to ask the court to initiate the procedure for settling his or her liabilities in accordance with the new Law.

The previous version of the legislation adopted by the Saeima specified that natural persons become solvent after all of their property has been sold and after they have paid the bank 30% of their income for two years.

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