The spiral of debt can quickly spiral out of control. Unpaid bills, mounting credit, bank overdrafts... When it becomes impossible to pay off non-business debts, the over-indebtedness procedure offers a legal way out. This approach, codified in articles L.711-1 et seq. of the French Consumer Code, enables individuals acting in good faith to restructure their debts, and even to obtain partial or total cancellation of their debts.
Referral to the over-indebtedness commission: procedure and deadlines
The procedure begins with the submission of an application to the Banque de France's overindebtedness commission. This application can now be made online, as indicated in a Banque de France press release dated 8 January 2021.
To be admissiblethe applicant must :
- be a natural person (legal entities are excluded)
- be in good faith
- find it manifestly impossible to pay your non-business debts
As stated in article L.711-1 of the French Consumer Code, "The mere fact of owning one's principal residence, the estimated value of which on the date the overindebtedness application is filed is equal to or greater than the amount of all non-business debts due and payable, is not an obstacle to the identification of the overindebtedness situation.
The commission then has three months to examine the admissibility of the claim and decide on its orientation, in accordance with article L.721-2 of the French Consumer Code.
The immediate effects of the application's admissibility
Suspension of enforcement proceedings
As soon as the commission declares the case admissible, a protection mechanism is automatically triggered. Article L.722-3 of the French Consumer Code states that "procedures and transfers of remuneration are suspended or prohibited, depending on the case". until the procedure has been completed.
However, this suspension cannot exceed two years. It protects the debtor against attachments and other enforcement measures. A creditor attempting to pursue enforcement proceedings in breach of this rule would be liable to sanctions.
Suspension of eviction orders
In the case of housing, protection is not automatic. Under article L.722-6 of the Consumer Code, the commission may refer the matter to the protection judge to request suspension of eviction measures. This can be done even in an emergency, on the initiative of the commission chairman, his delegate, the Banque de France representative or the debtor himself.
The maximum duration of this suspension is also limited to two years.
Special rules for residential leases
The ELAN Act of 23 November 2018 created a link between the overindebtedness procedure and the residential lease. Article L.714-1 of the Consumer Code now provides that in the event of a conventional plan or imposed measures including the rental debt, the rent judge must grant the same payment deadlines and terms.
If the commission imposes a time limit for suspending payment of the rental debt, the rent judge must grant this time limit, plus three months. The aim of this rule is to harmonise decisions and avoid contradictions that would be detrimental to the debtor.
The conventional recovery plan: negotiation and implementation
The first solution sought by the commission is to draw up a conventional recovery plan. Article L.732-1 of the French Consumer Code states that the commission shall "shall endeavour to reconcile the parties with a view to drawing up a conventional reorganisation plan approved by the debtor and its main creditors.
This plan may include various measures:
- debt rescheduling
- maturity extension
- reduction or elimination of the interest rate
- consolidation, creation or substitution of guarantees
Its maximum duration is set at seven years by article L.732-3 of the French Consumer Code. There are exceptions for debts relating to the principal residence.
The success of the plan depends on the agreement of the debtor and its main creditors. If the plan is adopted, the chairman of the committee signs it and a copy is sent to each party.
Recommendations in the event of failure of the conventional plan
When agreement proves impossible, the commission may, at the request of the debtor, impose certain measures by special reasoned decision.
Article L.733-1 of the French Consumer Code allows it to :
- reschedule debt payments for up to seven years
- give priority to capital payments
- reduce interest rates
- suspend the payment of debts for a maximum of two years
For more serious situations, article L.733-4 provides for more drastic measures such as partial debt write-off.
A difficulty raised by the Riom Court of Appeal in a ruling dated 16 January 2017 is worth highlighting: "The procedure for dealing with over-indebtedness does not require equal treatment of creditors, as the primary objective of the law is to remedy the situation of the over-indebted person.
The judge's role in the proceedings
The law of 18 November 2016 redefined the role of the judge, who now intervenes mainly in cases where commission decisions are contested. The aim of this reform is to speed up procedures.
The protection litigation judge has significant prerogatives. Article L.733-12 of the Consumer Code allows him to :
- order provisional enforcement of certain measures
- publish a call for creditors
- check the validity of receivables and securities
- ascertain whether the debtor is over-indebted
- prescribe investigative measures
In the event of an irremediably compromised situation, it may open a personal recovery procedure with or without judicial liquidation, which can lead to the total cancellation of the debtor's debts.
When is the assistance of a lawyer appropriate?
A lawyer can provide decisive added value in matters of overindebtedness, in particular when :
- Putting together the initial file: a lawyer can help identify all the debts to be included and present the arguments in favour of the debtor's good faith.
- Contesting an inadmissible decision: under article R.722-2 of the French Consumer Code, the debtor has 15 days to contest an unfavourable decision.
- Verification of claims: a lawyer can dispute certain claims that are doubtful or the amount of which appears excessive.
- Negotiating with creditors: particularly useful for large debts such as mortgages.
- Challenging recommendations: Article L.733-10 provides for the possibility of challenging measures imposed by the commission.
- Protection against enforcement procedures (seizures, evictions) taken illegally during the proceedings: a ruling by the Court of Cassation on 28 March 2024 (no. 22-12.797) recalled that the debtor may challenge directly before the enforcement judge protective measures taken in breach of the prohibition resulting from the admissibility of the case.
- The personal recovery procedure: when the issues concern the liquidation of the debtor's assets.
To avoid jeopardising your chances of obtaining debt relief, it may be a good idea to consult a lawyer as soon as you run into financial difficulties. Our firm is at your disposal to analyse your situation and guide you towards the solution best suited to your particular case.
Sources
- Consumer Code, articles L.711-1 to L.761-2
- Law 2016-1547 of 18 November 2016 on the modernisation of the justice system for the 21st century
- Law no. 2018-1021 of 23 November 2018 (ELAN law)
- Banque de France press release dated 8 January 2021 on the online application process
- Riom Court of Appeal, ruling of 16 January 2017
- Court of Cassation, 2nd Civil Division, judgment of 28 March 2024, no. 22-12.797
- Cour de cassation, 2nd civil chamber, ruling of 31 January 2019 on the effects of debt write-offs
- Banque de France report on overindebtedness (2020)
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