Over-Indebtedness: The New Law That Protects Consumers

This page is a translation of the original Portuguese text, provided for convenience. It deals with Brazilian law. If there is any discrepancy, the Portuguese version prevails. Read the original in Portuguese

Over-indebtedness affects millions of Brazilians, and in 2021 it received specific legal protection when Law 14.181 amended the Consumer Defense Code to create mechanisms for prevention, debt renegotiation, and preservation of each family’s mínimo existencial (the minimum amount a household needs to live with dignity).

What counts as over-indebtedness under Brazilian law

An over-indebted consumer is an individual, acting in good faith, who cannot pay all of their consumer debts, whether currently due or coming due, without compromising the basic support of themselves or their family. The definition covers credit card balances, financing, payroll-deductible loans, utility bills, and overdue installments, as long as the debts were not incurred through fraud.

The new legislation recognized a reality that affects about three-quarters of Brazilian families, according to recurring surveys by Brazil’s National Confederation of Commerce. Chronic indebtedness is now treated as a social and legal issue, not just a matter of individual default. A consumer who dealt honestly when entering into contracts but has lost the ability to meet those commitments now has formal tools for dealing with the debt.

The law’s protection does not extend to debts arising from high-value luxury goods or services, deliberate fraud, or contracts entered into with no intention of paying. Good faith is therefore the central requirement for obtaining the benefits the law provides, and the judge decides in each case whether it is present.

Debt renegotiation and the guarantee of the mínimo existencial

The major advance of the Over-Indebtedness Law was the creation of a judicial and out-of-court renegotiation procedure. The consumer can ask the court with jurisdiction to open a proceeding in which all creditors are summoned to a conciliation hearing, with the aim of drawing up a payment plan that fits the consumer’s actual income.

The comprehensive payment plan may provide for terms of up to five years, a reduction of abusive charges, and a temporary suspension of pending collection proceedings. If conciliation fails, the judge may open a judicial review proceeding, examining the contract terms, the rates charged, and the debtor’s ability to pay, and setting obligations that fit the consumer’s financial situation.

The law established the mínimo existencial as a consumer guarantee, preventing debt from consuming the amount a family needs to live with dignity. This minimum threshold is set by federal decree and works as an untouchable floor: no agreement or court decision can reduce the available net income below that limit.

The law established the mínimo existencial as a consumer guarantee, preventing debt from consuming the amount a family needs to live with dignity.

In practice, this mechanism balances the creditor’s right to be paid against the debtor’s right to subsist. The law breaks with the logic of scattered, individual collection actions and establishes a single forum for dealing with the debt, bringing efficiency, equal treatment, and predictability to all creditors involved in the procedure.

How consumers can seek collective renegotiation

A consumer in a situation of over-indebtedness should first gather documents showing their monthly income, fixed expenses, the complete list of creditors, and their current contracts. This inventory makes it possible to show clearly that they cannot meet their obligations without sacrificing their own support and that of their family.

The renegotiation request can be filed directly with the court with jurisdiction, with Procon (Brazil’s consumer protection agencies), or with the specialized units of the Public Defender’s Offices. In any of these channels, the consumer gains the opportunity for a global conciliation hearing, in which suppliers and financial institutions are called on to participate and to present proposals consistent with the debtor’s verified ability to pay.

Working with a lawyer who specializes in consumer law is recommended, because the procedural strategy requires a detailed analysis of the agreed rates, identification of abusive clauses, and a precise calculation of the mínimo existencial. A careful reading of each contract is decisive for spotting opportunities for review and increasing the financial relief achieved in the comprehensive plan.

The new framework also imposes duties on financial institutions and suppliers, such as the duty to provide clear information, the prohibition of advertising that encourages irresponsible spending, and the obligation to offer renegotiation terms that fit the consumer’s real circumstances. Failure to meet these obligations can result in the reduction or elimination of interest and charges on the debt, as assessed by the court.

Frequently Asked Questions

Who can request renegotiation under the Over-Indebtedness Law?

Renegotiation may be requested by an individual consumer, acting in good faith, who cannot pay their consumer debts without compromising the basic support of themselves or their family. Legal entities, tax debts, and child support or other maintenance obligations fall outside the scope of the law. Good faith is an essential criterion and means there was no fraud when the contracts were entered into.

What is the maximum term for completing the comprehensive payment plan?

The comprehensive plan may provide for installment payments over a period of up to five years, counted from court approval. This period is considered reasonable for financial recovery without excessive hardship for the consumer. While the plan is in effect, the originally agreed charges and the collection actions tied to the debts included in the procedure are suspended.

Can all debts be included in the over-indebtedness procedure?

No. Debts excluded include child support and other maintenance obligations, tax debts, debts arising from a lease guaranty, debts resulting from wrongful acts, and those arising from the purchase of high-value luxury products or services. Debts incurred through fraud are also excluded. All other consumer obligations, however, may be included in the comprehensive payment plan.

As informações deste artigo são de caráter informativo e não substituem consulta jurídica individualizada. Cada caso possui particularidades que exigem análise específica.