Over-Indebtedness

How can Le Bot Avocat help you?

Le Bot Avocat supports you throughout the over-indebtedness proceedings, offering legal advice tailored to your particular situation. 

Here is how we can help you:

1. Analysis of your financial situation: The firm will carry out a thorough analysis of your financial situation to determine the best possible solutions.
2. Preparation and filing of your application: The firm will help you prepare a strong and complete file for the over-indebtedness commission.
3. Representation before the commission: A lawyer from the firm will represent you at hearings before the over-indebtedness commission to defend your interests.
4. Negotiation with creditors: The firm can negotiate with your creditors to obtain more favourable repayment terms.
5. Monitoring and adjustment of the recovery plan: The firm will ensure that the recovery plan is complied with and, if necessary, will request adjustments based on changes in your financial situation.
6. Appeals in case of dispute: If a decision by the commission or a creditor is unfavourable to you, the firm will assist you in appealing and defending your rights before the court.

What you need to know

What is over-indebtedness?

Over-indebtedness is the situation in which you can no longer meet your non-professional debts, that is, debts unrelated to your professional activity. 

This situation must be manifest, meaning obvious, and you must be acting in good faith, meaning that you did not incur your debts fraudulently or recklessly. 

Over-indebtedness may also concern persons who have stood as guarantor or who have paid on behalf of a sole trader or a company that can no longer repay its debts (C. consom., art. L. 711-1,-1).

How do I have my over-indebtedness situation recognised?

You must apply to the over-indebtedness commission in your department. This commission will examine your file to verify whether you meet the eligibility conditions. 

You must be a natural person, domiciled in France or abroad if you are a French national, and must not be subject to collective proceedings for businesses in difficulty. 

The fact that you own your main residence does not prevent you from applying to the commission, even if its value exceeds your debts (C. consom., art. L. 711-1).

What are the effects of the admissibility of my application?

If the commission accepts your file, this will suspend legal proceedings and seizures brought against you or your assets, as well as any wage assignments you have consented to, for a maximum of two years. 

It will also prohibit banks and creditors from charging you fees or commissions, and will prohibit you from paying your existing debts (except maintenance payments), selling or giving away your assets, or granting new guarantees or security interests. 

You may be entitled to housing assistance if you qualify, and your registration on the personal credit repayment incident file (FICP) will be updated. 

Finally, evictions from your home may be suspended at the commission’s request for a maximum of two years (C. consom., art. L. 722-12 and L. 721-1 et seq.).

What are the possible solutions for getting out of over-indebtedness?

To get out of over-indebtedness, three solutions are available to you: 

1. Conventional recovery plan

The commission will first seek to establish a conventional recovery plan, an agreement between you and your main creditors to restructure your debts over a maximum period of seven years. This plan may include:

• Payment deferrals or instalment plans;
• Debt write-offs;
• Interest rate reductions or waivers;
• Debt consolidation;
• Amendments to security arrangements.

You will be required to comply with new obligations, such as not taking out new loans and making savings efforts. This plan applies without judicial intervention, except in the event of a dispute raised by you or your creditors (C. consom., art. L. 732-2).

2. Measures imposed or recommended by the commission

If a conventional plan is not possible or if conciliation fails, the commission may impose or recommend measures to reduce your indebtedness, for a maximum period of eight years. These measures may include:

• Rescheduling of your debt payments;
• Allocation of payments to the principal;
• Reduction of the interest rate;
• Suspension of the enforceability of your debts for a maximum of two years.

The commission may also recommend:

• Reduction of the amount of your mortgage loan in the event of sale of your main residence;
• Partial write-off of your debts.

These measures require judicial approval, and the judge may amend or refuse them. They do not benefit the guarantor unless the plan provides otherwise. The commission or the judge may also order the sale of your property if necessary to restore your financial situation (C. consom., art. L. 733-1 and L. 733-7).

3. Personal recovery

If your situation is irretrievably compromised, the commission may direct you towards personal recovery, a procedure aimed at discharging your debts. 

There are two types of personal recovery:

• Without judicial liquidation: If you have no assets to sell
• With judicial liquidation: If you have assets that can be sold by a court-appointed administrator

In both cases, your consent is required, and the judge must order the personal recovery. This procedure results in the discharge of all your non-professional debts, with certain exceptions (maintenance debts, fines, pecuniary reparations, fraudulent conduct, debts paid by a guarantor or co-borrower). You will be registered on the FICP for five years (C. consom., art. L. 733-15 and L. 741-1 et seq.).

How can over-indebtedness be avoided?

To avoid over-indebtedness, it is essential to manage your budget rigorously. Here are some practical tips:

1. Establish a monthly budget: Record your income and expenses to have a clear picture of your financial situation.
2. Avoid consumer credit: Only resort to credit when absolutely necessary and make sure you can repay it.
3. Build an emergency fund: Set aside part of your income to deal with unexpected expenses.
4. Negotiate with creditors: If you have difficulty repaying, contact your creditors to find an arrangement.
5. Consult a financial adviser: A professional can help you establish a financial management plan.

What are the remedies in case of over-indebtedness?

If you believe that your over-indebtedness situation has not been correctly assessed by the commission, you have the option to appeal the decisions made. Here are the main remedies available:

1. Appeal against the admissibility decision: If your file is declared inadmissible, you may appeal this decision before the judicial court.
2. Challenge of recommended measures: If you disagree with the measures imposed by the commission, you may apply to the judge to challenge them.
3. Request for revision of the plan: If your financial situation changes, you may request a revision of the recovery plan established by the commission.

What are the consequences of unresolved over-indebtedness?

Failure to resolve your over-indebtedness situation can have serious consequences:

1. Loss of assets: You risk losing your assets, including your main residence, in the event of seizure.
2. Charges and penalties: Creditors may impose charges and penalties for late payment.
3. Registration on the FICP: You will be registered on the personal credit repayment incident file, which may prevent you from obtaining new credit.
4. Social and psychological consequences: Over-indebtedness can lead to mental health problems and family tensions.

What assistance is available for over-indebted persons?

In France, several forms of assistance and schemes are available for persons in an over-indebtedness situation:

1. Housing assistance: You may be entitled to housing assistance to lighten your financial burden.
2. Support associations: Associations such as CRESUS or UFC-Que Choisir offer advice and free support.
3. Social services: The social services of your municipality can direct you to assistance and financial support schemes.
4. Social and family economy advisers (CESF): These professionals can help you manage your budget and find solutions for getting out of over-indebtedness.

Conclusion

Over-indebtedness is a difficult situation, but solutions exist to help you overcome it. It is important to act quickly and not hesitate to seek help. By taking the right steps, you can restore a healthy financial situation and avoid the serious consequences of over-indebtedness.