Financial debts and unpaid loans can become a source of anxiety for borrowers. In France, credit is a widely used tool for purchasing real estate, vehicles, or for personal expenses.
But when installments are not honored, the question often asked is: how long can a bank legally claim a sum owed?
This article helps you understand banks’ rights regarding the collection of old debts, the applicable limitation periods, the remedies available to debtors, and the strategies to adopt to avoid legal complications related to unpaid loans.
What You Need to Know About Unpaid Credit and Old Debts
An unpaid credit occurs when the borrower fails to honor their repayment installments in accordance with the credit agreement. This can apply to any type of loan, whether it involves consumer credit, a mortgage, or bank overdrafts.
An old debt, on the other hand, refers to a claim whose repayment has been expected for some time but has not yet been settled by the debtor.
These situations can lead to penalties, additional interest, and even legal proceedings if they are not addressed in time.
But until when can the bank legally hold a debtor liable for a debt or unpaid credit? This brings us to the following concept.
Limitation and Foreclosure Periods: The Legal Framework in France
In France, debts, like unpaid loans, are not indefinitely recoverable by banks. They are subject to limitation periods or foreclosure periods, which vary depending on the nature of the loan and the type of claim.
Limitation period (prescription): The limitation period is a legal mechanism designed to extinguish a legal action or an obligation due to the passage of time. It is designed to consolidate a legal situation by preventing belated actions, while leaving the parties free to honor or not honor their obligations. The limitation period thus extinguishes the right of action or the obligation, but the parties remain free to fulfill their commitments.
The limitation period is not always a matter of public policy, unless otherwise provided by law. The limitation period generally begins from the time the creditor becomes aware of the right or obligation and may be suspended or interrupted by certain acts (e.g., acknowledgment of debt, legal proceedings).
Foreclosure period (forclusion): The foreclosure period, on the other hand, is a procedural mechanism that conditions the exercise of a right upon the completion of an action within a specified timeframe. If this deadline is not met, the right to act is permanently lost, and the action becomes inadmissible.
Unlike the limitation period, foreclosure is a matter of public policy and cannot be modified by the parties. The foreclosure period begins from a specific event defined by law or contract and cannot be suspended or interrupted, except by express legal provision.
Here are some common deadlines regarding credit and banking debts in France:
- Consumer credit: In consumer credit matters, payment actions brought by the lender against the defaulting borrower must be initiated within a period of two years from the event that gave rise to them, such as the first unrectified payment default (Article R. 312-35 of the French Consumer Code). This is a foreclosure period, meaning it cannot be suspended or interrupted, except for exceptions provided by law.
- Mortgages: Article L. 218-2 of the French Consumer Code provides that the action of professionals for the goods and services they provide to consumers, including mortgages, is time-barred after two years. This period applies in particular to actions for repayment of a mortgage brought by a banking institution against a consumer borrower.
- Bank overdrafts: The foreclosure period applicable to payment actions for a bank overdraft is two years. This period is provided for by Article L. 312-93 of the French Consumer Code, combined with Article R. 312-35 of the same code. This period begins to run from the expiry of a three-month period following the unrectified exceeding of the authorized overdraft amount. In other words, the starting point of the foreclosure period is set at 90 days after the exceeding if no rectification has occurred within that period (Cass. 1re civ., 25 May 2022, no. 20-23.326).
What Happens After the Limitation Period Expires?
Once the limitation period has expired, the debt is considered extinguished from a legal standpoint. In other words, the bank can no longer legally demand payment of that debt or initiate legal action to recover the funds.
However, this does not mean that the debt disappears entirely. It may still appear in the internal systems of banks or collection agencies, but no legal proceedings can be brought against the debtor.
It is important to emphasize that if a bank or collection agency nevertheless attempts to recover a time-barred debt, the debtor can defend themselves by raising the limitation defense before the courts.
However, certain actions can interrupt or suspend this period.
How Can the Limitation Period Be Interrupted or Suspended?
There are indeed events that can interrupt or suspend the limitation period. This allows the bank to reactivate its right to claim the debt, even after the limitation period has ended.
Here are the main elements that can trigger this scenario:
1. Interruption of the limitation period
Interruption of the limitation period resets the clock to zero. It erases the time already elapsed, and a new period begins to run after the interrupting event. Here are the main elements that interrupt the limitation period:
- Acknowledgment of the debt by the debtor: If the debtor acknowledges the debt (for example, by making a partial payment or sending a written acknowledgment), the limitation period is interrupted.
- Legal proceedings or service of process: When legal action is initiated, the limitation period is interrupted. It does not matter whether the action is admissible or not.
- Enforcement measures: A seizure, a payment order, a wage garnishment, a protective measure, or any other coercive measure also interrupts the limitation period.
Effect of the interruption: The limitation period restarts from zero from the day the interrupting act occurs.
2. Suspension of the limitation period
Suspension of the limitation period does not erase the time already elapsed but simply stops it from running during a certain period. Once the cause of suspension is lifted, the period resumes where it left off. The causes of suspension are provided for by Articles 2230 et seq. of the French Civil Code. Here are the main causes:
- Impossibility to act: The limitation period is suspended when the person is unable to act due to an impediment resulting from law, agreement, or force majeure (French Civil Code, Art. 2234);
- Mediation or conciliation: The limitation period is suspended from the day the parties agree to resort to mediation or conciliation, or failing a written agreement, from the first mediation or conciliation meeting (French Civil Code, Art. 2238);
- Pre-trial investigative measures: When the judge grants a request for pre-trial investigative measures (for example, a judicial expert assessment), the limitation period is suspended until the completion of that measure (French Civil Code, Art. 2239).
Effect of the suspension: The period resumes running as soon as the cause of suspension ends.
Rights and Protections of Borrowers Regarding Credit
As a debtor, it is essential to know your rights when dealing with a bank or a collection agency. Here are some protections available to borrowers in France:
- Over-indebtedness: If a debtor finds themselves unable to repay their debts, they can file an over-indebtedness application with the Banque de France. This mechanism allows for the rescheduling or even cancellation of certain debts, thereby providing protection against legal proceedings by creditors.
- Abusive practices: Banks and collection agencies are required to comply with certain ethical rules. They cannot harass debtors with incessant phone calls or threaten to seize assets without a prior court order. The debtor can file a complaint in the event of abusive practices.
- Negotiation: Before resorting to coercive measures, it is often possible to negotiate a payment schedule with the bank. However, be aware that this may constitute an acknowledgment of debt and interrupt the limitation periods.
What to Do If the Bank Continues to Claim a Time-Barred Debt?
Despite the law, some banks or collection agencies may attempt to recover debts that are legally time-barred. Here are the steps to follow if you find yourself in this situation:
- Verify the date of the debt: The first step is to determine the original date of the debt and compare it with the statutory limitation periods. It is strongly recommended to seek the assistance of a lawyer.
- Send a letter of dispute: If you find that the debt is time-barred, you can send a registered letter with acknowledgment of receipt to the bank or collection agency, invoking the limitation period. It is important to keep a copy of this letter.
- Defend yourself in court: If the bank initiates legal proceedings despite the limitation period, you can challenge this action before the court by providing evidence that the debt is indeed time-barred. A lawyer will be invaluable in this regard.
Conclusion: Can Banks Still Legally Collect Old Debts?
In summary, banks do indeed have the right to claim an unpaid credit or an old debt, but only within the limits of the applicable limitation or foreclosure periods.
These periods vary depending on the type of loan or claim, and once they have expired, debtors can no longer be legally compelled to pay.
However, it is important to remain vigilant and know your rights, as certain actions or behaviors can interrupt these periods. If you are in a situation involving unpaid or old debts, seeking appropriate legal advice can help you find a suitable solution and avoid long-term complications.
