Consumer over-indebtedness is an economic and social reality that has led the legislator to introduce a specific mechanism designed to offer a second chance to debtors acting in good faith. Far from being a simple payment facility, this mechanism constitutes a genuine legal obstacle to enforcement measures. Initially conceived as a recovery mechanism, over-indebtedness law has gradually evolved to include more radical solutions, including the outright cancellation of debts. Our firm, through its practice dedicated to banking law and enforcement measures, recognises that the complexity of this procedure requires a precise analysis in order to master all its aspects and effectively protect the debtor's rights.
Introduction: development and objectives of the law on personal over-indebtedness
The law on household over-indebtedness in France is a relatively recent legislative development, the cornerstone of which was Law no. 89-1010 of 31 December 1989, known as the "Neiertz Law". Its initial aim was to deal with situations of financial distress using a conciliatory approach, seeking to draw up amicable repayment plans. Given the changing profile of over-indebted people, who are often victims of "life accidents" (loss of employment, divorce, illness), the legislator has had to adapt and strengthen the system on several occasions, notably with the Borloo law of 2003, which introduced the personal recovery procedure, a form of personal bankruptcy, and then the Lagarde law, which speeded up processing times.
The aim of the procedure has thus shifted from a simple recovery to a genuine "fresh start". The aim is to enable individuals to get out of a spiral of debt that has become insurmountable. The current system, which is mainly governed by the French Consumer Code, is based on a dual approach, with an administrative phase conducted by the over-indebtedness commissions managed by the Banque de France, and a judicial phase overseen by the judge responsible for protection disputes. This dual structure aims to strike a balance between the search for amicable solutions and the application of restrictive measures when the situation so requires, going as far as debt cancellation in the most compromised cases.
Eligibility conditions and assessment of the debtor's good faith
To benefit from the over-indebtedness procedure, applicants must meet strict eligibility criteria. Natural persons, whatever their nationality, domiciled in France or, in the case of French nationals, domiciled outside France but who have contracted non-business debts with creditors established in France are eligible. The procedure is open to employees, pensioners and even, in certain cases, sole traders for their non-business debts. When submitting the application, the applicant must provide all supporting documents attesting to his or her financial situation. However, people covered by the collective procedures of the Commercial Code (merchants, craftsmen, farmers, self-employed professionals) are excluded for all their debts.
The central criterion, and the most open to interpretation, is that of the debtor's good faith, as set out in article L. 711-1 of the Consumer Code. Good faith is presumed, and it is up to the creditor to prove it. Case law assesses this concept globally, combining a contractual approach (the circumstances in which the debts were created) and a procedural approach (the debtor's behaviour during the proceedings). The judge examines the debtor's general behaviour to determine whether he has consciously created or aggravated his over-indebtedness. Excessive and lavish spending, a lifestyle that is manifestly disproportionate to income, or misleading statements may be considered to be bad faith. Conversely, passive indebtedness resulting from an accident in life is not enough to rule it out. Recent case law confirms that a debtor who has already benefited from a plan is not automatically considered to be acting in bad faith if he or she files a new application, provided that he or she can justify new factors that worsen his or her situation. The assessment of these conditions is complex and decisive for the outcome of the procedure, often making it useful to be assisted by a lawyer with expertise in credit law.
Effects of the admissibility of the case on enforcement measures
The commission's decision to accept an over-indebtedness case has immediate and powerful effects. Article L. 722-2 of the Consumer Code automatically suspends and prohibits most enforcement proceedings against the debtor's assets. This protection also applies to assignments of remuneration that the debtor may have agreed to. This suspension affects most enforcement proceedings against the debtor's property, including transfers of remuneration or seizures on bank accounts. This protection lasts for a maximum of two years, while a lasting solution is found.
However, there are important exceptions to this principle. Maintenance debts are not covered by this suspension. In addition, the foreclosure is dealt with specifically: if the compulsory sale of the main residence has already been ordered before the admissibility decision, the auction is not automatically postponed. The commission must then apply to the enforcement judge for a postponement, which will only be granted for serious and justified reasons. Similarly, the automatic suspension does not apply to measures to evict people from their homes, particularly in the case of rental debts. However, the commission or the debtor may apply to the judge (sometimes the lease judge) to obtain judicial suspension. In addition to the legal suspension, it is possible to apply for specific judicial and optional suspension mechanismsThe terms and conditions are described in detail in the analysis of the interaction between overindebtedness and seizure of property.
Recovery plans: from amicable plans to imposed measures
When the debtor's situation is not deemed to be "irretrievably compromised", the over-indebtedness commission focuses on devising recovery measures. The first step is to reach an amicable agreement via a conventional recovery plan, often referred to as an over-indebtedness plan. This is a real contract, negotiated between the debtor and his main creditors under the aegis of the commission, for a maximum period of seven years. The repayment plan may contain various measures: rescheduling of payments, deferment of instalments, reduction in interest rates, or even partial debt write-offs. The end of the plan marks the return to a normal situation, if all the deadlines have been met.
A fundamental concept guides the drawing up of this plan: the "living allowance". The commission must ensure that the repayments, based on the debtor's repayment capacity, leave the debtor with a sum sufficient to meet his or her day-to-day expenses (housing, food, health, etc.), at least equal to the flat-rate amount of the RSA. In addition, to avoid aggravating the situation during the procedure, the law prohibits the practice of "intercalary interest": debts no longer generate interest between the cessation of liabilities and the effective implementation of the plan. If the amicable phase fails and no agreement is reached, the commission has extensive powers. It can directly impose certain measures, such as rescheduling debts or suspending their payment for two years, including tax debts.
Personal recovery: a solution for irremediably compromised situations
When no recovery plan can be envisaged, the procedure moves towards a more radical solution: personal recovery. This route, which is similar to a civil personal bankruptcy, is reserved for debtors whose situation is deemed to be "irretrievably compromised", i.e. when it is clearly impossible to pay off the debt using conventional treatment measures. The assessment of this situation is based on an analysis of the debtor's assets and future prospects (age, qualifications, state of health).
There are two variants of this procedure. The first is personal recovery without judicial liquidation. This is imposed by the commission when the debtor has no assets of realisable value, with the exception of furnishings necessary for day-to-day living. This quicker procedure results in the debt being written off by a judge who approves the commission's recommendation. The second is personal recovery with judicial liquidation. This is opened by the judge, with the debtor's agreement, when the debtor has realisable assets (property, a valuable vehicle, etc.). This phase, which may lead to a judicial liquidation in which the assets are sold, is part of a broader framework in which it is essential to understand the impact of insolvency proceedings on enforcement and the principle of discontinuing individual proceedings. An agent is then appointed to sell the assets. The proceeds of the sale are used to pay off creditors. At the end of the liquidation, the judge declares the liquidation closed, which entails the wiping out of the remaining debts.
Cancellation of debts: scope and exceptions to personal recovery
The judgment closing a personal recovery procedure, whether with or without liquidation, results in the wiping out of virtually all of the debtor's non-business obligations. The scope of this partial or total cancellation is broad, including all non-business debts and, in particular, the following guarantee debtsThe complex nature of this system merits particular attention. This cancellation has the effect of extinguishing the debtor's obligation, which is much stronger than a simple prescription or an impossibility to continue.
However, the legislator has provided for strict exceptions. Certain debts are never written off. The main ones are: maintenance debts (alimony); criminal fines and pecuniary compensation awarded to victims of a criminal conviction; debts arising from fraudulent manoeuvres to the detriment of social welfare bodies; pawnbroking loans taken out with municipal credit institutions. In addition, if a guarantor or co-obligor (natural person) has paid part of the debt in place of the debtor, the latter remains liable to repay it. One of the consequences of the procedure is that the debtor is registered in the Fichier national des Incidents de remboursement des Crédits aux Particuliers (FICP) for a period of five years. The over-indebted person is therefore registered in the FICP, which restricts their access to credit. They are only removed from the file after this period has elapsed.
Challenges and legal remedies in over-indebtedness proceedings
The over-indebtedness procedure is not a purely administrative process and the commission's decision can be contested. Both debtors and creditors can challenge the decision to accept or reject the case, as well as the measures imposed or recommended. This appeal is lodged with the protection litigation judge, often at the court registry. Notification of the decision, usually by registered letter with acknowledgement of receipt, specifies the deadline for lodging such a challenge.
The judge hearing the case has full jurisdiction. He is not bound by the opinion of the commission and re-examines the entire case. He can verify the validity and amount of the claims, assess the debtor's good faith and determine whether his situation is irretrievably compromised. It has extensive powers: it can validate, modify or cancel the measures proposed by the commission and substitute its own decision. For example, it can draw up a legal plan to replace the commission's recommendations. The judgement handed down may itself be appealed, subject to the exceptions set out in the legislation. The complexity of the criteria for good faith and the remedies available often makes it essential to the assistance of a lawyer specialising in over-indebtedness proceedings to maximise your chances of success and ensure that your rights are protected.
Sources
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Consumer Code, in particular Articles L. 711-1 et seq.
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Code of civil enforcement procedures
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