A new legislation (Legal Framework for Guarantees) was sanctioned in Brazil, aiming to make guarantees in financial operations more flexible and dynamic, with the goal of reducing credit costs in Brazil.
In the context of credit recovery, we highlight the following relevant changes arising from the new legislation, which favor creditors when there is default:
1. Possibility of Successive Fiduciary-Liens: the same property may be used as guarantee for more than one transaction with the same creditor, up to the limit of the total value of the asset. Therefore, if the original debt is of BRL 40 thousand and the property worths BRL100 thousand, the debtor may take out a loan from the same creditor of up to BRL 60 thousand, using the same asset as guarantee.
2. Extrajudicial Execution of the Property: to consolidate ownership of property, the new law allows such procedure to be carried out exclusively through the notary’s office, without the need to file a judicial lawsuit, a measure that should reduce time and costs. However, the provision that also allowed the extrajudicial execution of movable assets, such as vehicles, for example, was barred.
3. Incentive for Extrajudicial Renegotiation of Debt: the creditor is now allowed to delegate the extrajudicial renegotiation of the debt to the notary at the registry office where the debt was indicated for protest.
In conclusion, in addition to reducing bureaucracy regarding fiduciary-lien agreements, the new legislation also aims to reduce judicial litigation by encouraging measures such as extrajudicial execution of the guarantee and debt renegotiation, factors that should contribute to mitigating costs of credit in Brazil.