Unpayable Debts to be Cancelled: Tax Collection Folders

Debts That Will Be Cancelled Due to Collection Reform

There are uncollectible debts that can no longer be recovered.
The enforcement orders containing them will be discharged (canceled) and returned to the creditor.
Let’s see the news and which debts will be canceled by the collection reform.
Decree 110 of 2024 sparked controversy when the news of the debt discharge leaked.
After its publication in the Official Gazette on August 7, the measure became law and foresees the discharge of enforcement orders in Article 3: this is a novelty that will come into effect starting from January 1, 2025.

How Does the Discharge Work?

From 2025, enforcement orders entrusted to the collection agent (Revenue Agency Collection) will be returned to the creditor if not collected within 5 years.
The creditor, in turn, may decide whether to reassign them to the same collection agent (in case there are opportunities for collection) or to definitively cancel the credit as deemed uncollectible.

The measure does not provide for the cancellation of all uncollected enforcement orders within the five-year period, but only for a discharge of credits from the collection agent to the taxing authority to allow, among other things, the removal of sums from the budget.

What Does Article 3 of the Collection Decree Provide?

The rule establishes that all enforcement orders entrusted to the Revenue Agency Collection and not collected by December 31 of the fifth subsequent year are automatically discharged.

Paragraph 2 of the third article also provides that the Revenue Agency Collection can transmit at any time to the creditor entity, electronically and according to the methods established by the decree of paragraph 1, the communication of early discharge of the quotas entrusted from January 1, 2025 if it is ascertained:

1. the debtor’s bankruptcy;
2. the absence of the debtor’s assets;
3. the lack of new assets compared to those already considered that did not allow the recovery of sums.

Paragraph 2 highlights the possibility of discharging enforcement orders even before the 5 years provided for in paragraph 1, in cases where the debt is deemed uncollectible from the outset.

Paragraph 3, finally, grants the same creditor entities the possibility to request the Revenue Agency Collection the early return of the registered charges:

• after 24 months from the taking charge if they are credits entrusted for collection before the entry into force of this decree (August 8, 2024);
• between the twenty-fourth and thirtieth month following the taking charge if entrusted subsequently to the date of entry into force of the decree.

Reasons for the Introduction of Debt Discharge

Removing the burden of uncollectible debts from the Revenue Agency Collection also means allowing staff to focus on collectible debts.
The cancellation of the debt should be based not only on the time spent trying to collect it without success but also on other factors such as how much time has passed since the debt arose, its amount, the estimate of recovery possibilities, and the debtor’s financial situation.

What Are Uncollectible Debts?

Sometimes a debtor does not want or cannot repay the debts incurred.
When the debt is transformed into an enforcement order, there is a risk that enforcement procedures involving administrative seizure, mortgage, or third-party attachment will be activated.
This ensures that the creditor (often the Treasury) will recover the sums owed.

In some cases, however, debts are considered uncollectible, highly improbable to be collected by the creditor.
A debt becomes uncollectible when the recovery activity does not yield the expected results, the debtor is unable to repay it, the debtor is untraceable (or deceased), or has declared bankruptcy.

In all these cases, the debt is considered uncollectible, and these are the scenarios for which the automatic cancellation of enforcement orders is intended.