Without this option, official default would only worsen
For decades, creditors holding final court judgments against Brazilian states and municipalities have waited — sometimes a lifetime — for payment. On Friday, Brazil's Supreme Court affirmed that a 2016 constitutional mechanism allowing governments to draw on judicial deposits to settle these overdue debts does not constitute a seizure of private assets, but rather a bounded, time-limited response to a structural fiscal crisis. The decision places institutional trust in safeguards already built into the system, while acknowledging that the true measure of justice will be found not in the ruling itself, but in whether those safeguards hold.
- Creditors owed money through final court judgments have faced years — in some cases decades — of non-payment, as states and municipalities accumulated precatório backlogs with no clear path to resolution.
- Former Attorney General Rodrigo Janot raised an alarm in 2017: allowing governments to tap private citizens' court-held deposits to pay public debts could amount to institutional theft, leaving ordinary litigants scrambling to recover their own funds.
- Justice Barroso led a majority of six in rejecting those concerns as unproven speculation, pointing to strict temporal limits — only pre-2015 debts, only until 2029 — and a Selic-indexed guarantee fund designed to protect private depositors.
- The Court also dismissed the separation of powers challenge, noting that judicial deposit accounts are administered by courts themselves, insulating the mechanism from executive or legislative interference.
- With the legal path now cleared, states and municipalities may begin drawing on these deposits to reduce their backlogs, but the practical success of the ruling hinges on whether guarantee funds in each jurisdiction prove adequate to their promise.
Brazil's Supreme Court has validated a constitutional mechanism allowing states and municipalities to use judicial deposits held in court systems to pay off long-overdue precatório debts — final court judgments owed to creditors that have gone unpaid for years. The ruling, handed down Friday in a virtual session, resolves a legal challenge that had been pending since 2017.
Under Constitutional Amendment 94 of 2016, governments may draw on up to 75 percent of deposits from cases in which they are parties, and up to 20 percent of other deposits held by state court systems. Deposits tied to food and child support obligations are explicitly excluded. The remaining funds flow into a guarantee fund — reinforced by a 2017 amendment that also tied it to the Selic rate — designed to ensure private depositors can still recover their money.
The challenge, brought by then-Attorney General Rodrigo Janot, rested on a serious premise: that redirecting private citizens' court-held funds toward government debts amounted to misappropriation, potentially forcing ordinary litigants to relitigate just to reclaim what was already theirs. The argument invoked both property rights and the separation of powers.
Justice Luís Roberto Barroso, writing for the majority, found these concerns theoretical rather than demonstrated. Janot's office never showed that deposits in any given jurisdiction were insufficient to cover precatório payments, nor that private parties had actually been unable to recover their funds. Without concrete evidence of systemic failure, the Court declined to strike down a functioning mechanism on the basis of speculation. The separation of powers concern also dissolved: judicial deposit accounts are managed by courts themselves, not by governors or legislatures, leaving institutional independence intact.
Barroso added a pragmatic note — without this option, official default would only deepen, and creditors who have already waited decades would face even dimmer prospects. Six justices have joined his position, establishing a clear majority before the session closes. Whether the decision delivers on its promise will depend on the real-world adequacy of guarantee funds across Brazil's diverse states and municipalities.
Brazil's Supreme Court has cleared the way for states and municipalities to tap into judicial deposits held in court systems to pay off years of accumulated debt to creditors owed money through final court judgments. The decision, handed down Friday in a virtual session, validates a mechanism created by Constitutional Amendment 94 in 2016 that had faced legal challenge since 2017.
The amendment allows states and municipalities to use up to 75 percent of judicial deposits from cases where they are parties to the litigation, and up to 20 percent of other deposits held by the respective state court system—with an important exception: deposits meant to cover food and child support obligations remain off limits. The remaining deposits are funneled into a guarantee fund designed to protect the interests of private parties who placed money in court as security during their own lawsuits.
When the rule was first challenged by then-Attorney General Rodrigo Janot in 2017, his argument was straightforward and serious: using private citizens' money held in judicial custody to pay government debts amounted to theft. If states and municipalities drained these deposits, ordinary people would have to go back to court to recover their own funds. The system, Janot contended, violated both property rights and the separation of powers.
The Court's majority, led by Justice Luís Roberto Barroso, rejected these concerns as theoretical rather than demonstrated. Barroso emphasized that the amendment itself imposed strict limits: the deposits can only be used by states and municipalities that fell behind on precatório payments before March 2015, and only until the end of 2029. This is not a permanent raid on the system but a time-bound solution to a specific debt crisis. Moreover, the guarantee fund—reinforced by a subsequent amendment in 2017 that also indexed it to the Selic interest rate—exists precisely to ensure that private depositors can still recover their money. The Court found no evidence that this fund was inadequate to the task.
Barroso also noted that the former attorney general's office never actually demonstrated that the system was failing. They did not show that deposits flowing into any given state or municipality were insufficient to cover the precatório payments being made, nor did they prove that private parties were unable to recover their funds. Without such proof, the Justice reasoned, the Court could not strike down a concrete measure based on speculation.
The separation of powers argument also fell away under scrutiny. The accounts used to pay precatórios are managed exclusively by the courts themselves, not by governors or legislatures. The management of judicial deposits is an administrative function, not a judicial one, so there is no institutional overreach. By allowing this mechanism to proceed, the Court is not empowering the executive or legislative branches to interfere in judicial affairs.
Barroso made one more point that cuts to the heart of the matter: without this option, the situation for creditors waiting to be paid would only worsen. Official default would become even more entrenched. The amendment offers a path, however imperfect, to actually settle debts that have accumulated for decades in some cases.
Six justices have now voted with Barroso—Cristiano Zanin, Rosa Weber, Luiz Edson Fachin, Dias Toffoli, and André Mendonça. The virtual session continues until late Friday night, and more votes may come in, but the majority is already set. The decision clears the legal path for states and municipalities to begin or continue using these deposits to chip away at their precatório backlogs, though the real test will be whether the guarantee funds actually protect private depositors as promised.
Notable Quotes
The Supreme Court cannot set aside a concrete measure to settle debts from final court judgments based merely on theoretical risk to private depositors.— Justice Luís Roberto Barroso, summarized from his ruling
Without this possibility, official default would be even worse.— Justice Luís Roberto Barroso
The Hearth Conversation Another angle on the story
Why did the former attorney general think this was such a dangerous idea?
Because he saw it as the government taking money that didn't belong to it. When you put money in court as security during a lawsuit—say, to guarantee you'll pay if you lose—that money is yours. Using it to pay government debts meant private citizens would have to sue again to get their own money back.
But the Court said there's a guarantee fund to protect those people. Is that enough?
That's the question Janot never answered. He warned about the risk but never showed it was actually happening. The Court said: prove the fund doesn't work, prove people can't get their money back. He didn't.
So this is really about a debt crisis that's been building for years?
Exactly. States and municipalities owe billions to people who won court cases against them. Some of these debts go back decades. Without some way to pay them, the backlog just grows. This amendment is a pressure valve.
Does this mean the government can just take anyone's money in court?
No. It's very specific: only deposits from cases where the state is already a party, only up to certain percentages, and only for debts from before 2015. It's not a blank check.
What happens to the people waiting to get their court deposits back?
That's where the guarantee fund comes in. The idea is that the remaining deposits—the money not used for precatórios—sits in a fund earning interest. When private parties need their money, it comes from there. Whether that actually works depends on whether each state manages it properly.
And if it doesn't?
Then we'll see another lawsuit. But for now, the Court decided the risk is theoretical enough that they can't block a concrete solution to a real problem.