On 30 September, the Constitutional Court passed a judgment in case No 2025-23-01, by which it found certain provisions of the Law on the Release of a Natural Person from Debt Obligations to be incompatible with the first three sentences of Article 105 of the Constitution. The Court concluded that the legislation does not ensure that only persons unable to settle their debts that had fallen due were released from their debts.
The contested norms set out the criteria for the level of income and status of a person, as well as the maximum amount of debt obligations which, if not exceeded, allows the release from debt obligations to be applied to the person.
The case was initiated based on an application by a licensed debt recovery service provider. The applicant considered that the contested norms significantly expanded the range of persons and cases when release from debt is possible thus reducing the value of the applicant’s debt portfolio.
The Court concluded that the contested norms restricted the creditors’ right to property because by releasing the debtor from their debts, the creditor loses their right to claim. At the same time, such a limitation is aimed at helping people who, due to their financial situation, are unable to settle their debts to restore their solvency and to participate more fully in the economy, as well as to provide support to groups of people that the State has undertaken to protect in particular.
However, remission of debt is only justified if the person is objectively unable to pay. The level of a person’s income or affiliation to a group of persons defined by law does not in itself constitute such evidence. Low income does not in itself mean that the debtor is unable to meet their obligations, as the debtor may have assets or savings, while their expenses may be relatively low. Therefore, the ability of a person to settle their debts can only be properly assessed by considering their income, expenses and assets.
The Court found that the current regulation does not provide for such an exhaustive assessment of a person’s financial situation. The process of the remission of debt examines the level of a person’s income and compliance with the criteria set out in the law but does not fully assess their expenses and assets. The legislation therefore does not ensure that only people genuinely unable to pay are released from their debts.
The Court also noted that the release of a solvent debtor from their debt without justification does not contribute to the public welfare and does not guarantee the rights of particularly protected persons. The contested norms limit the creditor’s right to property without objective justification, as well as increase the risk of lending, which in turn may affect the availability and cost of loans also for persons whom the legislator has wished to protect in particular.
The Court concluded that a just balance between the creditors’ right to property and the public interest had not been achieved and that the restriction of fundamental rights contained in the contested norms was not proportionate. The contested norms were declared invalid as of 1 October 2027 to allow the legislator to adopt new legislation.
The legislator has a margin of discretion to determine the groups of persons to be protected by law and to choose the most appropriate mechanism to ensure that only persons who are unable to meet their debt obligations that have fallen due are discharged from their debts.
The judgment of the Constitutional Court is final and not subject to appeal. It shall enter into force on the day of its publication in the official gazette “Latvijas Vēstnesis”.
Related case: 2025-23-01