Constitutional Court: Low income alone doesn't mean a debt can't be repaid

Latvia's Constitutional Court has ruled that the current legal framework for discharging individuals from debt obligations does not comply with the Constitution, because it fails to ensure a proper assessment of a debtor's actual financial situation.

The court explained that debt discharge is justified only when a person is objectively unable to repay what they owe. Neither a person's income level nor their membership in a legally defined socially protected group is, on its own, proof of an inability to pay — a person may hold savings or property while having relatively low expenses. A proper assessment therefore requires weighing income, expenses, and assets together.

Gaps in the current system

The court found that the existing process checks only income levels and eligibility criteria set out in law, without fully evaluating a person's expenses or assets. As a result, people who could actually afford to repay their debts may still be discharged from them.

The court noted that unjustified discharge of solvent debtors does not serve the public good and restricts creditors' property rights, since creditors lose their claims once a debtor is discharged. This also raises lending risk, which can make credit more expensive or harder to access — including for the very groups lawmakers intended to protect. The court concluded that the current rules fail to strike a fair balance between creditors' property rights and the public interest.

Deadline for change

The contested provisions will remain in force until October 1, 2027, giving lawmakers time to adopt a new legal framework ensuring that debt discharge applies only to people genuinely unable to meet their obligations. The ruling is final and takes effect on the day it is published in the official gazette "Latvijas Vēstnesis."

The case was brought by debt-collection company SIA "GelvoraSergel," which argued that amendments to the law that took effect in January 2025 significantly broadened the pool of people eligible for debt discharge, reducing the value of its purchased debt portfolio.