Estonian Ministry of Justice Proposes to Leave Debtors with More Income
Estonia's Ministry of Justice and Digital Affairs has proposed simplifying debt enforcement by introducing a percentage-based garnishment system, aiming to encourage formal employment and reduce the shadow economy.
The Estonian Ministry of Justice and Digital Affairs has circulated a draft amendment to the Code of Enforcement Procedure that would allow debtors to retain a larger portion of their income, incentivizing them to work in the formal economy.
According to the ministry, approximately 100,000 debtors in Estonia owe money to about 20,000 individuals and businesses. The proposed reform seeks to simplify collections while improving protections for debtors.
The key change replaces the current complex calculation of protected income with a simpler percentage-based model. Under the proposal, 10% of income at or below the minimum wage could be garnished, 30% of income between one and two times the minimum wage, and 50% of income above that level. Higher rates may apply in child-support cases.
For example, a debtor earning less than the minimum wage of €946 per month would have €94.60 withheld. For income between one and two times the minimum wage, the garnishment would range from €94.60 to €567.60. For income exceeding twice the minimum wage, anything above €567.60 per month could be garnished.
The ministry argues the new system would make enforcement clearer, reduce administrative costs, and leave debtors with a better chance of covering basic living expenses. It hopes the changes will encourage people to stay in formal employment rather than conceal income or work in the shadow economy.
The current system, with relatively high withholding rates, has contributed to some indebted individuals leaving the labor market or working off the books, the ministry says. Creditors could also benefit, as repayments would become more stable and predictable over time.
The reform would also reduce the workload of courts and bailiffs by limiting requests to reduce garnishments and disputes over enforcement actions.
Under the proposal, the protected non-garnishable amount would apply to only one of a debtor's bank accounts. Additional accounts would be fully subject to garnishment. Employers would no longer have to manage garnishment orders or communicate with bailiffs, provided wages are paid into an account at an Estonian credit institution.
The ministry estimates there are between 400,000 and 500,000 enforcement cases involving around 90,000 debtors at any given time, meaning significant savings in administrative costs for businesses. Exceptions would remain for income routed through third parties or foreign bank accounts, while benefits intended for third parties, such as child benefits, would continue to be exempt.
The ministry began preparing the reform in 2024 after consulting stakeholders. It expects legislation to reach parliament in the second half of next year, with the new system entering into force in 2028.
