On 7th of September The Parliament passed a law that will allow credit institutions to unilaterally clear retail mortgage loans that were borrowed by the end of 2008 and deemed irrecoverable.
In the regulation it is no longer required to have a mandatory agreement between the creditor and the debtor, which has so far been considered to be a significant lingering factor for the full or partial settlement of liabilities. The law determines which individuals will qualify to clear the debt.
Gatis Eglītis, a Member of Parliament from the Conservatives faction and member of the Parliament’s budget and finance commission, recalls that by being unable to cover their credit obligations due to the rapid financial crisis, many borrowers and guarantors lost their homes while still remaining in debt. They started to hide their income from authorities and banks to avoid creditors. Many even emigrated from Latvia. “A large part of these debts have not been cleared or paid off, so we are still feeling the effect of the crisis today. This is an important step, both individually for those people and their families who will be relieved from the burden of debt and for the Latvian economy as a whole, because those in economic difficulty will be able to stand on their feet again. This will also reduce the shadow economy, envelope wages, tax avoidance and create additional
“In addition, we decided that the amendments would apply not only to credit institutions but also to debt-recovery firms. So the circle of people who will be relieved from the debt burden of the past is even greater,” Eglītis adds.
As a result, banks are expected to discharge debts of around 8000 debtors at around €389 million and around €5000 for guarantors of around €224 million.
The Ministry of Justice has prepared, and the Parliament has approved a legislation package regarding the release from debt if the debtor cannot pay the debt. It will be a fast and simple way to declare bankruptcy for commitments of up to €5000 made up of fast non-bank loans.
“This will be the next step that will make it easier for citizens to dispose of the debt they have drowned in by borrowing money in credit institutions or private firms, as well as by purchasing goods or services with the so-called deferred payment,” informs Eglītis.