Conditions for Seizure of Collateral of Non-Performing Loans in Accordance with Decree No. 304/2025/ND-CP

In the context where the resolution of non-performing loans continues to be a key task of the credit institution system, the balance between the right of the secured party to recover debts and the right of the borrower to minimum protection of living conditions and livelihood has increasingly attracted the attention of lawmakers. Decree No. 304/2025/ND-CP, effective from 1 December 2025 (“Decree 304”), was promulgated to provide detailed guidance on Article 198a of the Law on Credit Institutions No. 32/2024/QH15 as amended and supplemented by Law No. 96/2025/QH15 (“the Amended Law on Credit Institutions 2025”). This Decree establishes a new and more stringent legal framework for the seizure of collateral that constitutes the sole residence or the principal or sole means of livelihood of a non-performing loan. This category of assets is particularly sensitive and requires a cautious, transparent approach and strict compliance with statutory conditions in the process of access and enforcement.

1. Overview of Decree 304 and general principles for the seizure of collateral of non-performing loans

Prior to the effectiveness of Decree 304, the seizure of collateral being the sole residence or means of livelihood of the borrower often gave rise to numerous disputes, complaints and litigation risks. In practice, even where the security agreement provided for the right of seizure, if the collateral was directly related to the place of residence or the principal income-generating means of the security provider, enforcement actions frequently encountered strong resistance from the property owner.

Decree 304 adopts an approach that does not “prohibit” the seizure of the two special categories of assets mentioned above, but instead imposes additional, humanitarian conditions that require the secured party to share a portion of the economic value in order to ensure a minimum standard of living for the security provider after the asset is seized. This approach both protects human rights and creates a clear legal basis for banks to lawfully carry out seizures, thereby limiting the risk of obstruction in practice.

Under Decree 304, all cases of seizure of collateral of non-performing loans must fully satisfy the general conditions set out at points a, b, c, d and e of Clause 2 Article 198a of the Amended Law on Credit Institutions 2025. On the basis of these general conditions, Decree 304 introduces a set of specific conditions applicable to collateral that is (i) the sole residence and (ii) the principal or sole means of livelihood, in order to prevent mechanical seizures that fail to take social factors into account.

2. Conditions for seizure of the sole residence of the security provider

Pursuant to Clause 1 Article 3 of Decree 304, a sole residence is determined based on the following factors:

• It is the lawful residence of the security provider as an individual;
• It is owned by the security provider;
• It is the place where the security provider has registered permanent or temporary residence;
• If the collateral being the sole residence is seized, the security provider has no other place of residence.

In determining whether a property constitutes a sole residence, the secured party must not rely solely on the certificate of ownership, but must also take into account the actual residential status, as evidenced by documents in accordance with Article 5 of Decree 304.

Pursuant to point a Clause 1 Article 4 of Decree No. 304/2025/ND-CP, where the collateral is the sole residence, in addition to satisfying the general conditions, the secured party may only proceed with seizure if it fulfills the obligation to allocate to the security provider an amount equal to twelve (12) months of minimum wage applicable to the region where the security provider actually resides, in accordance with the Government’s regulations on minimum wages applicable to employees working under labor contracts (“minimum wage”). This amount is intended to assist the security provider in stabilizing a new place of residence after the seizure of the house.

3. Conditions for seizure of the principal or sole means of livelihood

Pursuant to Clause 2 Article 3 of Decree 304, the principal or sole means of livelihood is determined based on the following factors:

• It is movable property used as the principal or sole means of subsistence of the security provider as an individual;
• At the time specified in Clause 1 Article 5 of this Decree, the value of such means of livelihood does not exceed twenty-four (24) months of minimum wage;
• If the collateral being the principal or sole means of livelihood is seized, the security provider does not have sufficient income at least equal to the minimum wage.

Pursuant to point b Clause 1 Article 4 of Decree 304, where the means of livelihood was not formed from the loan capital and has been duly confirmed and evidenced in accordance with Clause 1 Article 5 of this Decree, seizure may only be carried out when the secured party allocates to the security provider an amount equal to six (6) months of minimum wage.

This approach reflects a cautious legislative perspective, aiming to avoid situations where seizure results in the borrower losing all capacity to generate income, thereby giving rise to social consequences and reducing the likelihood of recovering the remaining obligations.

4. Obligations of confirmation, proof and responsibilities of the security provider

One important new feature of Decree 304 is the shifting of the burden of proof to the security provider. Specifically, pursuant to Article 5 of Decree 304, the security provider is responsible for confirming and proving whether the collateral falls within or outside the category of a sole residence or principal means of livelihood, at the request of the secured party, within ten (10) working days from the date of receipt of such request.

If the security provider fails to carry out such confirmation and proof within this time limit, the asset will be automatically determined as not falling within the specially protected category and the secured party may proceed with seizure in accordance with the general regulations. This is a very important legal mechanism that helps banks avoid situations of indefinite delay or obstruction caused by the non-cooperation of the borrower.

At the same time, the security provider must bear responsibility for the truthfulness, accuracy and legality of the documents provided, including certificates of ownership, income statements, tax records, utility bills and other relevant documents. The provision of inaccurate or misleading information may give rise to legal liability in the event of a dispute.

5. Practical considerations for banks and borrowers

From the perspective of secured parties, namely credit institutions, Decree No. 304 requires a comprehensive review of the entire system of security agreements, particularly provisions on the right of seizure and the specific characteristics of collateral and the formulation of handling plans that take into account statutory support costs. Standardizing provisions in security agreements from the credit agreement execution stage, as well as requiring borrowers and security providers to prepare complete notification documents, confirmation requests and evidentiary materials, will be decisive for the ability to resolve non-performing loans swiftly and effectively in the future.

For borrowers and security providers, understanding their rights and obligations is particularly important. Where the collateral falls within the protected category, the borrower should proactively provide evidentiary documents within the statutory time limit to protect legitimate rights and interests. Conversely, delay or lack of cooperation may result in the borrower losing the protective mechanism established by law.

Decree No. 304/2025/ND-CP represents an important step forward in improving the legal framework governing the seizure of collateral of non-performing loans, particularly with respect to sole residences and principal or sole means of livelihood. A thorough understanding and correct application of these conditions will enable both banks and borrowers, as well as security providers, to be more proactive in selecting appropriate resolution options, minimizing dispute risks and ensuring effective enforcement in practice.