On July 1, 2021, Statute #14,181, also known as the Overindebtedness Act, was approved. It amended the Brazilian Consumer Protection Code and the Brazilian Elderly Bill of Rights with the purpose of protecting individuals who, in good faith, contracted debts above their ability to pay and without compromising their social minimum, with the exception of consumers of luxury items, which are not protected.
Then, on July 27, 2022, Decree #11,150, which regulated said Statute, was published. The Decree follows the same line as the Statute, defining overindebtedness as the clear impossibility of the consumer, natural person, to pay all of his or her consumer debts, due in good faith, without compromising his or her social minimum. Consumer debts are financial commitments taken by the consumer, natural person, for the purchase or use of a product or service as the final recipient.
However, defining “social minimum” was more important than semantics of consumer debt: a monthly income of the consumer, natural person, equivalent to 25% of the minimum wage in force on the publication date of said Decree. Without getting into the argument of creditors having the right to their credit and good-faith but imprudent, negligent, or imperfect debtors, it was interesting to note the authority's belief that 25% of the current minimum wage is able to provide for someone's survival. And soon after, another very controversial measure was applied to the extent that such 25% does not follow the minimum wage readjustment, i.e., if surviving with 25% of the current minimum wage is already difficult, surviving with a lower percentage, in view of the readjustments, is even worse.
Therefore, preserving the social minimum is now based on income and the total of payable debts in each month, given that the social minimum is not protected against:
1. Debts and credit limits not allocated to consumption.
2. Installments of debts related to real estate financing and refinancing.
3. Installments of debts arising from loans and financing with security interest.
4. Installments of debts arising from credit agreements ensured by guarantees.
5. Installments of debts arising from rural credit operations.
6. Installments of debts financing entrepreneurial or productive activity, including those subsidized by the Brazilian Bank of Economic and Social Development (BNDES).
7. Installments of debts previously renegotiated in accordance with the provisions of Chapter V (Debt Collection) of Title III of Statute #8,078, of 1990.
8. Installments of tax debts and condominium fees linked to real estate and furniture owned by the consumer.
9. Installments of debts arising from payroll-deductible credit operations ruled by a specific law.
10. Installments of debts arising from credit operations with anticipation, discount, and assignment (including fiduciary) of financial balances, credits and rights constituted or to be constituted, including through endorsement or appropriation of bonds or other representative instruments.
11. Unused credit limits associated with postpaid payment account.
12. Available and unused overdraft limits and pre-approved lines of credit limits.
An interesting aspect of the regulation is that the social minimum and its protection will not be considered an impediment to granting a credit operation which aims to replace another previously contracted operation, as long as it serves to improve the consumer's conditions, in the same or other financial institutions – although the latter is only possible through the portability of credit, which will be regulated by the Brazilian Monetary Council.
Finally, within the scope of administrative or judicial conciliation of overindebtedness in consumer debts, renegotiations will preserve the guarantees and payment method originally agreed upon – with the exception of debts arising from contracts intentionally entered into without the purpose of making payment, even if arising from consumer relations – and debts arising from credit agreements with security interests, real estate financing, and rural credit.
It should be noted, in view of the above, that the assessment of good faith of the over indebted subject can be quite difficult and complex, without evidence or indications effectively demonstrating it.