The Legal Framework for Guarantees is legislation that aims to make the use of guarantees in financial operations, aiming reducing credit costs in Brazil.
In the context of credit recovery, there are 3 relevant changes arising from the new legislation, which favors creditors in case of default:
1. Possibility of Successive Fiduciary Liens: the same property may be given as collateral for more than one transaction with the same creditor, up to the limit of the total value of the asset. Thus, if the original debt is BRL 40k and the property is valued at BRL 100k the debtor can take out a loan from the same creditor for up to BRL 60k using the same asset as collateral.
2. Extrajudicial Execution of Property: to consolidate ownership of property, the law allows this procedure to be carried out exclusively at a notary’s office, without the need to file a lawsuit, a measure that should reduce time and costs. However, the provision that also allows the extrajudicial execution of movable assets, such as vehicles.
3. Incentive for Extrajudicial Debt Renegotiation: 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, to reduce bureaucracy in the institution of fiduciary lien, the Legal Framework for Guarantees aims to reduce judicial litigation by encouraging measures such as extrajudicial execution of the guarantee and debt renegotiation, factors that should contribute to mitigate costs of credit in Brazil.
