Insolvency proceedings of individuals in Latvia
Most of us have experienced periods in our life when unexpected circumstances lead to a fall in income or unexpected expenses. Typically, such situations are temporary and can be resolved by borrowing additional funds, distributing payments due or outlasting financially precarious times in other ways.
Insolvency for individuals in Latvia
However, it is possible that financial problems may not be solved in the short term, and debt levels are only rising, creditors calculate interest and penalties that increase over time. At this point, you should ask yourself whether it is even possible to pay off your debt in the foreseeable future. Instead of devoting the next few years of your life to paying off debt and interest payments, nowadays there is a legal and effective mechanism for overcoming financial failures and gaining the opportunity to regain control over your income.
What to consider when considering whether to commence insolvency proceedings?
- insolvency proceedings can be initiated if a person owes more than € 5,000 and the debt is already due;
- the state of the person’s property and income must be such as to prevent them from meeting their obligations;
- the person must have acted in good faith before the insolvency proceedings are instituted, and must not have engaged in any transaction that results in a loss for the creditors;
- the person must be able to cover the costs of opening the insolvency proceedings in the amount of 930 euros;
- 1/3 of a person’s income is diverted to creditors in the insolvency proceedings;
- insolvency proceedings can take from about 6 months to 3 years, depending on the size of the person’s debt.
It is important to receive qualified legal assistance both before and during the commencement of the insolvency proceedings to ensure the successful conduct of the proceedings – timely evaluation of the person’s transactions, proper communication and protection of the person’s interests with the insolvency administrator. It should be borne in mind that there are a number of circumstances in which a person’s insolvency proceedings may not be declared or may be terminated halfway without the person being released from his obligations.
Any natural person who has been a taxpayer of the Republic of Latvia for the last six months and who is in financial difficulties may be the subject of insolvency proceedings. Thus, a person wishing to go through insolvency proceedings in Latvia does not have to be a Latvian citizen. At the same time, it must be taken into account that if a person is a citizen of another European Union country, does not reside in Latvia but in another EU Member State or his creditors come from other EU Member States – the provisions of the EU Insolvency Regulation must be taken into account.
The insolvency proceedings of such person shall not be declared in Latvia if the center of its main interests is not located in Latvia. In the case of a natural person pursuing an economic activity as a sole proprietor, he must first go through the insolvency proceedings of the sole proprietor as a legal person.
The insolvency proceedings of a natural person shall not be applicable if the person has not complied with the said and has not completed the insolvency proceedings of an individual merchant.
The insolvency proceedings and bankruptcy in Latvia
The insolvency proceedings of a natural person consist of two successive parts – bankruptcy and debt cancellation proceedings. Bankruptcy proceedings involve the realization of all the assets of the debtor and the proceeds of their realization being diverted to the satisfaction of creditors, with the exception of property which is not subject to recovery. Under a debt settlement procedure, the debtor’s income is diverted to settle the creditors’ claims and, at the end of the debt settlement procedure, the outstanding debt is extinguished.
Although bankruptcy proceedings generally last for 2-3 months, it may happen that a court-appointed insolvency administrator does not perform his duties properly and delays the proceedings unnecessarily, to the detriment of the individual. In such a situation, it is important to have legal assistance to ensure the rapid and efficient running of the insolvency process, including preventing the administrator from taking unreasonable or arbitrary actions against the insolvent person. It should be noted that the execution proceedings are suspended at the time of the declaration of insolvency proceedings, and that the debtor’s accounts at the time of insolvency proceedings are relieved and that the sworn bailiffs are not entitled to withhold any further funds from the insolvent person.
However, it should be borne in mind that sworn bailiffs must be notified of the fact of the insolvency proceedings being declared and that the court-appointed insolvency administrator does not always perform such duties in a timely manner.
Following the opening of insolvency proceedings, the debtor loses the right to dispose of all of his assets and loses the right to enter into certain types of
transactions and enter into new debt without the consent of the administrator.
Similarly, the insolvency process requires the administrator to assess a person’s previous transactions. For a successful insolvency proceeding, it is essential that the person receives qualified legal assistance to prevent any transaction, information or action taken by the person from becoming the basis for immediate termination of the insolvency proceedings without releasing the person from the obligations.
The Law firm LUMOS consists of both practicing attorneys at Law and insolvency administrators who provide clients with the highest level of legal assistance in insolvency matters.