When debts pile up with no hope of being paid, a situation often referred to as over-indebtednessThe French legal system offers a radical solution: personal recovery. This procedure, often compared to 'civil bankruptcy', allows debtors to start afresh by wiping out their debts under certain strict conditions.
Personal recovery without compulsory liquidation
Conditions of eligibility
To benefit from this procedure, the debtor must be in an "irremediably compromised" situation, according to article L.724-1 of the French Consumer Code. In practice, this means that it is manifestly impossible for the debtor to take any steps to remedy the situation. conventional measures for dealing with over-indebtedness.
The debtor must also have very limited assets: only furnishings necessary for day-to-day living, non-professional assets essential to his business, or assets with no market value. In a ruling handed down on 19 February 2015, the Court of Cassation specified that this procedure applies even when the debtor owns his or her main residence.
La good faith remains an essential condition, as the Court of Cassation pointed out in a ruling of 22 May 2008. Fraudulent behaviour or wilful organisation of insolvency exclude this possibility.
Procedure and legal effects
Since the law of 18 November 2016, the Commission de surendettement has had the exclusive power to impose the opening of a personal recovery procedure without judicial liquidation. The judge intervenes only in the event of a dispute.
This procedure is published in the Bulletin officiel des annonces civiles et commerciales (BODACC), allowing uninformed creditors to lodge an appeal within two months.
Debt write-off: scope and limits
The main effect of this procedure is the cancellation of all non-business debts outstanding at the date of the decision. But beware: this erasure is not equivalent to payment. In an important ruling on 31 January 2019, the Court of Cassation stated that "the cancellation of the rental debt, which is not equivalent to its payment, does not eliminate the tenant's contractual breach".. The landlord therefore retains the right to terminate the lease.
Personal recovery with compulsory liquidation
Opening criteria
This procedure applies when the debtor owns valuable assets that can be sold to partially pay off creditors. The debtor's explicit agreement is required - silence on the part of the debtor is equivalent to refusal under article L.742-1 of the French Consumer Code.
The Commission de surendettement must refer the matter to the juge des contentieux de la protection after obtaining the debtor's agreement. After analysing the case, the judge can then open the procedure by judgment.
How the procedure works
The judge may appoint a trustee to draw up an economic and social report on the debtor. This professional, chosen from a list drawn up by the Public Prosecutor (article R.742-5 of the Consumer Code), analyses the debtor's assets and liabilities.
Creditors must declare their claims within two months of publication of the opening order. If they fail to do so, their claims are extinguished, unless the court grants a discharge.
Liquidation of the debtor's assets
The liquidator has 12 months to sell the assets. The law favours amicable sale, but forced sale remains possible. Certain assets may not be sold:
- Unseizable assets (article L.112-2 of the Code of Civil Enforcement Procedures)
- Goods that have no market value or whose selling costs would be disproportionate
- Non-business assets essential to the business activity
The sale of a property is governed by specific rules, with the judge able to set a minimum price and order the cancellation of mortgages.
Closing and effects on debts
Closure on the grounds of insufficient assets results in the wiping out of all debts as at the date of the opening judgment, rendering null and void any debts that may have been incurred. seizure procedures. This radical effect explains the need for a judicial decision.
An entry in the Fichier national des Incidents de remboursement des Crédits aux Particuliers (FICP) is maintained for 8 years.
Non-erasable debts
Some debts remain payable despite the procedure:
- Maintenance debts
- Criminal fines
- Damages awarded to victims of criminal offences
- Debts paid by a guarantor or co-obligor who is a natural person
- Debts arising from pawnbroking
- Debts arising after the opening judgment
Case law adopts a strict interpretation of the concept of "maintenance debt". For example, the Court of Cassation has ruled that the cost of school meals, a stay in a retirement home or hospitalisation for a child do not constitute maintenance debts (opinion of 8 October 2007 and rulings of 3 July 2008 and 19 March 2009).
The help of a lawyer: a necessity
The complexity of personal recovery procedures justifies the involvement of a lawyer. The lawyer can:
- Assess the appropriateness of such a procedure, particularly with regard to the assets owned
- Defending the debtor's good faith, which is sometimes contested
- Identify debts that can be written off
- Dispute any claims lodged
- Accompanying debtors to hearings
Lawyers can provide invaluable assistance in avoiding the pitfalls: some debtors refuse to use this procedure out of ignorance, even though it may be their only solution. Others, on the contrary, request it without considering its implications, in particular the impossibility of resorting to it again for several years.
Don't wait until your situation becomes critical - consult a lawyer at the first sign of financial difficulties to explore all the options available in your particular case.
Sources
- Consumer Code: articles L.724-1, L.733-1 to L.733-7, L.741-1 to L.742-22, R.742-5
- Code of civil enforcement procedures: article L.112-2
- Court of Cassation, 2nd Civil Chamber, 19 February 2015, no. 13-28.236
- Court of Cassation, 2nd Civil Division, 22 May 2008, no. 07-11.329
- Court of Cassation, 2nd Civil Chamber, 31 January 2019
- Cour de cassation, opinion, 8 October 2007, no. 07-00.013
- Court of Cassation, 2nd Civil Chamber, 3 July 2008, no. 07-15.223
- Court of Cassation, 2nd Civil Division, 19 March 2009, no. 07-20.315
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