Debt collection from wages
Debt collection from wages
In order to make a deduction from an employee's salary, strict requirements must be met and correct calculations must be made in accounting. In addition, there are situations when deductions are not possible at all! In order to solve this problem, amendments have been prepared to the Civil Procedure Law (CPL), which provide for changes in the amount of deductions from the debtor's wages. What will be the differences and what does this mean for accountants?
Taking into account that indebtedness is one of the influencing factors of the shadow economy, which promotes envelope wages and creates a desire for the debtor to hide the true amount of income, a bill "Amendments to the Civil Procedure Law" has been developed, which provides for changes in Article 594, which refers to citizens who have indebtedness, based on executive documents (executions). In other words, the employee's employer has received an order from the bailiff for the obligation to make deductions from wages and similar payments. Deductions from the debtor's income are carried out in accordance with the procedure established by the CPL. The existing regulation provides that certain cases are possible when it is not possible to make deductions from the debtor's income, for example, the debtor does not own property and the debtor's income is lower than the minimum monthly income established in the state, which actually makes the collection process impossible.
What will change?
According to the amendments to the law, a recovery model has been developed to motivate the debtor to continue to earn income in legal work and not to fictitiously reduce the official income, while not excluding the possibility of directing recovery in a proportionate amount from the debtor's income. The new collection model provides that amendments are made regarding the withholding calculation and the requirement for the amount of the amount to be kept, which is not affected by the collection deductions, is abolished.
Along with the new deduction calculation model, deductions can also be made from the amount of the minimum monthly wage determined by the state. The existing deduction calculation model provides that at least 50% of the minimum monthly salary is kept for the employee or, in some cases, it is kept in full. Collection deductions will be made regardless of the type of collection in the amount of 10% even if the debtor's income does not exceed the minimum monthly salary. The amount of withholding will be reduced by 2% for each dependent minor child of the debtor. Thus, it will be possible to at least gradually implement debt cancellation even in cases where the debtor does not have registered property against which collection could be directed.
Amendments to Article 594 of the CPL also provide for expanding the list of included claims, additionally including recoverable payments to state or local government institutions, payments related to activities in a multi-apartment residential building, management expenses, utility payments or payments for the relevant savings.
Let's take a look at how deductions will have to be calculated in different situations!
Driving for a minor child
The submitted amendments change the recovery of maintenance for a minor child or the recovery of maintenance in the form of damages or compensation for personal injury caused by a criminal offense or an administrative violation, or in accordance with the decision made in the process of an administrative violation.
The existing regulation stipulates that 50% of the minimum monthly salary and an additional 15% of the minimum salary for each dependent minor child are retained from the salary to be paid (net).
The planned amendments provide that if the income does not exceed the minimum monthly wage, 10% of the debtor's income (net) is reduced by 2% for each dependent minor child (assuming that this calculation is always applied up to the minimum monthly wage).
In addition, if the debtor's income exceeds the minimum monthly wage, an additional withholding is applied from the excess amount - 75% for maintenance recovery for a minor child, 40% for other types of recovery.
Therefore, the existing regulation regarding the recovery of child support for minor children and other recovery referred to in this paragraph requires the debtor to maintain the minimum amount of wages to be paid, while the planned amendments determine the minimum amount of withholding that must be made from the debtor's income. If the debtor's income is above the minimum monthly wage level, then according to the amendments to the law, a reasonable amount will be withheld from the debtor, based on the amount of the debtor's income, while the existing regulation provides for maintaining the standard of living established in the country by deducting the largest part of the debtor's income. If the debtor's income is equal to or lower than the minimum monthly salary, then, based on the existing regulations, deductions are made from the debtor in a minimal amount or not at all. The planned amendments to the law provide that at least 10% is deducted from the debtor's income to cover debts.
Another type of drive
The changes also affect other types of collection that are not related to child support. The existing regulation stipulates that 30% is withheld from the debtor's income while maintaining a job a wages in the amount of the minimum monthly wage and additionally 15% of the minimum monthly wage for each dependent minor child.
The planned amendments provide that if the income does not exceed the amount of the minimum monthly wage, 10% of the debtor's income (net) is reduced by 2% for each dependent minor child. If the debtor's income (net) exceeds the amount of the minimum monthly wage, the amount of the minimum monthly wage is deducted from the amount of income and an additional deduction of 30% is applied to the difference.
Therefore, the existing regulation regarding other types of collection requires the debtor to maintain the minimum amount of salary to be paid (in the amount of the monthly minimum salary), while the planned amendments determine the minimum amount of withholding from the debtor's income.
If the debtor's income is above the minimum monthly salary, then according to the amendments to the law, a reasonable amount is withheld from the debtor, based on the amount of the debtor's income. On the other hand, the existing regulation envisages maintaining the standard of living set in the country, deducting 30% of the excess. If the debtor's income is equal to or lower than the minimum monthly salary, then, based on the existing regulation, deductions cannot be made from the debtor. The planned amendments to the law provide that at least 10% is deducted from the debtor's income to cover debts, which will facilitate gradual repayment.
If there are several executive documents
The existing regulation stipulates that 50% of the debtor's income is retained, but not less than the minimum monthly wage, and an additional 15% of the minimum monthly wage for each dependent minor child.
The planned amendments provide that if the income does not exceed the amount of the minimum monthly wage, 10% of the debtor's income (net) is reduced by 2% for each dependent minor child.
If the debtor's income (net) exceeds the amount of the minimum monthly salary, the amount of the minimum monthly salary is deducted from the amount of income and an additional deduction of 50% is applied to the difference.
If the debtor's income is above the minimum monthly wage level, then according to the amendments to the law, a reasonable amount is withheld from the debtor, based on the amount of the debtor's income. On the other hand, the existing regulation provides for deducting 50%, maintaining the subsistence level established in the country, but if the minimum subsistence amount exceeds 50% of the debtor's income, the difference between the debtor's income and the minimum subsistence amount is withheld. If the debtor's income is equal to or lower than the minimum monthly salary, then, based on the existing regulation, deductions cannot be made from the debtor. The planned amendments to the law provide that at least 10% of the debtor's income is withheld to cover debts, which will facilitate the gradual repayment of the debt.
When comparing the withholding calculation models for collections, the amount of salary to be paid to the debtor remains at approximately the same level. By applying the calculation model of the planned amendments, the calculation of the withholding object is not so complicated.
What can be concluded?
According to the amendments to the law, based on the new withholding calculation model, it can be concluded that even the debtor with the minimum monthly wage income makes gradual debt repayment, which contributes to a positive effect on both the debtor and the debt collector. Based on the existing model and the planned calculation model, it is not possible to recover the debt from a debtor who has five minor children as dependents and whose income does not exceed the amount of the monthly minimum wage.
Compared to the existing regulation, the model for calculating the amount of planned withholding provides that in some cases the debtor's income level is kept a few euros higher, in others - a few euros lower. In general, the planned model for calculating the amount of withholding contributes to the gradual repayment of the debt, regardless of the debtor's financial condition, maintaining a reasonable means of subsistence, which would encourage the debtor not to hide legal income by reducing envelope salaries in the country. The planned calculation model determines that regardless of the income level, 10% will be deducted for debt repayment. If the debtor receives more than the minimum subsistence level, additional withholding (the difference between the minimum subsistence level and the net salary) will be applied. The planned calculation model also facilitates the procedure for calculating withholding objects.
Currently, the amendments to the CPL are in the first reading, but for the changes to come into force, the Saeima must pass them in three readings. We continue to follow its progress!
Taking into account that indebtedness is one of the influencing factors of the shadow economy, which promotes envelope wages and creates a desire for the debtor to hide the true amount of income, a bill "Amendments to the Civil Procedure Law" has been developed, which provides for changes in Article 594, which refers to citizens who have indebtedness, based on executive documents (executions). In other words, the employee's employer has received an order from the bailiff for the obligation to make deductions from wages and similar payments. Deductions from the debtor's income are carried out in accordance with the procedure established by the CPL. The existing regulation provides that certain cases are possible when it is not possible to make deductions from the debtor's income, for example, the debtor does not own property and the debtor's income is lower than the minimum monthly income established in the state, which actually makes the collection process impossible.
What will change?
According to the amendments to the law, a recovery model has been developed to motivate the debtor to continue to earn income in legal work and not to fictitiously reduce the official income, while not excluding the possibility of directing recovery in a proportionate amount from the debtor's income. The new collection model provides that amendments are made regarding the withholding calculation and the requirement for the amount of the amount to be kept, which is not affected by the collection deductions, is abolished.
Along with the new deduction calculation model, deductions can also be made from the amount of the minimum monthly wage determined by the state. The existing deduction calculation model provides that at least 50% of the minimum monthly salary is kept for the employee or, in some cases, it is kept in full. Collection deductions will be made regardless of the type of collection in the amount of 10% even if the debtor's income does not exceed the minimum monthly salary. The amount of withholding will be reduced by 2% for each dependent minor child of the debtor. Thus, it will be possible to at least gradually implement debt cancellation even in cases where the debtor does not have registered property against which collection could be directed.
Amendments to Article 594 of the CPL also provide for expanding the list of included claims, additionally including recoverable payments to state or local government institutions, payments related to activities in a multi-apartment residential building, management expenses, utility payments or payments for the relevant savings.
Let's take a look at how deductions will have to be calculated in different situations!
Driving for a minor child
The submitted amendments change the recovery of maintenance for a minor child or the recovery of maintenance in the form of damages or compensation for personal injury caused by a criminal offense or an administrative violation, or in accordance with the decision made in the process of an administrative violation.
The existing regulation stipulates that 50% of the minimum monthly salary and an additional 15% of the minimum salary for each dependent minor child are retained from the salary to be paid (net).
The planned amendments provide that if the income does not exceed the minimum monthly wage, 10% of the debtor's income (net) is reduced by 2% for each dependent minor child (assuming that this calculation is always applied up to the minimum monthly wage).
In addition, if the debtor's income exceeds the minimum monthly wage, an additional withholding is applied from the excess amount - 75% for maintenance recovery for a minor child, 40% for other types of recovery.
Therefore, the existing regulation regarding the recovery of child support for minor children and other recovery referred to in this paragraph requires the debtor to maintain the minimum amount of wages to be paid, while the planned amendments determine the minimum amount of withholding that must be made from the debtor's income. If the debtor's income is above the minimum monthly wage level, then according to the amendments to the law, a reasonable amount will be withheld from the debtor, based on the amount of the debtor's income, while the existing regulation provides for maintaining the standard of living established in the country by deducting the largest part of the debtor's income. If the debtor's income is equal to or lower than the minimum monthly salary, then, based on the existing regulations, deductions are made from the debtor in a minimal amount or not at all. The planned amendments to the law provide that at least 10% is deducted from the debtor's income to cover debts.
Another type of drive
The changes also affect other types of collection that are not related to child support. The existing regulation stipulates that 30% is withheld from the debtor's income while maintaining a job a wages in the amount of the minimum monthly wage and additionally 15% of the minimum monthly wage for each dependent minor child.
The planned amendments provide that if the income does not exceed the amount of the minimum monthly wage, 10% of the debtor's income (net) is reduced by 2% for each dependent minor child. If the debtor's income (net) exceeds the amount of the minimum monthly wage, the amount of the minimum monthly wage is deducted from the amount of income and an additional deduction of 30% is applied to the difference.
Therefore, the existing regulation regarding other types of collection requires the debtor to maintain the minimum amount of salary to be paid (in the amount of the monthly minimum salary), while the planned amendments determine the minimum amount of withholding from the debtor's income.
If the debtor's income is above the minimum monthly salary, then according to the amendments to the law, a reasonable amount is withheld from the debtor, based on the amount of the debtor's income. On the other hand, the existing regulation envisages maintaining the standard of living set in the country, deducting 30% of the excess. If the debtor's income is equal to or lower than the minimum monthly salary, then, based on the existing regulation, deductions cannot be made from the debtor. The planned amendments to the law provide that at least 10% is deducted from the debtor's income to cover debts, which will facilitate gradual repayment.
If there are several executive documents
The existing regulation stipulates that 50% of the debtor's income is retained, but not less than the minimum monthly wage, and an additional 15% of the minimum monthly wage for each dependent minor child.
The planned amendments provide that if the income does not exceed the amount of the minimum monthly wage, 10% of the debtor's income (net) is reduced by 2% for each dependent minor child.
If the debtor's income (net) exceeds the amount of the minimum monthly salary, the amount of the minimum monthly salary is deducted from the amount of income and an additional deduction of 50% is applied to the difference.
If the debtor's income is above the minimum monthly wage level, then according to the amendments to the law, a reasonable amount is withheld from the debtor, based on the amount of the debtor's income. On the other hand, the existing regulation provides for deducting 50%, maintaining the subsistence level established in the country, but if the minimum subsistence amount exceeds 50% of the debtor's income, the difference between the debtor's income and the minimum subsistence amount is withheld. If the debtor's income is equal to or lower than the minimum monthly salary, then, based on the existing regulation, deductions cannot be made from the debtor. The planned amendments to the law provide that at least 10% of the debtor's income is withheld to cover debts, which will facilitate the gradual repayment of the debt.
When comparing the withholding calculation models for collections, the amount of salary to be paid to the debtor remains at approximately the same level. By applying the calculation model of the planned amendments, the calculation of the withholding object is not so complicated.
What can be concluded?
According to the amendments to the law, based on the new withholding calculation model, it can be concluded that even the debtor with the minimum monthly wage income makes gradual debt repayment, which contributes to a positive effect on both the debtor and the debt collector. Based on the existing model and the planned calculation model, it is not possible to recover the debt from a debtor who has five minor children as dependents and whose income does not exceed the amount of the monthly minimum wage.
Compared to the existing regulation, the model for calculating the amount of planned withholding provides that in some cases the debtor's income level is kept a few euros higher, in others - a few euros lower. In general, the planned model for calculating the amount of withholding contributes to the gradual repayment of the debt, regardless of the debtor's financial condition, maintaining a reasonable means of subsistence, which would encourage the debtor not to hide legal income by reducing envelope salaries in the country. The planned calculation model determines that regardless of the income level, 10% will be deducted for debt repayment. If the debtor receives more than the minimum subsistence level, additional withholding (the difference between the minimum subsistence level and the net salary) will be applied. The planned calculation model also facilitates the procedure for calculating withholding objects.
Currently, the amendments to the CPL are in the first reading, but for the changes to come into force, the Saeima must pass them in three readings. We continue to follow its progress!