When a debtor is facing financial difficulties that could lead to a seizure of property, the over-indebtedness procedure may represent a solution to try to preserve their home or flat. If you find yourself in this tricky situation, understanding the relationship between these two procedures can help you adopt the best strategy. This article looks specifically at how these two mechanisms work together to deal with your debt.
The effects of filing a case for overindebtedness on a pending property seizure
A decision by the Commission de surendettement that a case is admissible automatically suspends all legal proceedings against the debtor, in accordance with the provisions of the French Consumer Code.
This suspension gives the debtor a temporary respite from trying to find a solution to his financial difficulties. In practice, this suspension and prohibition of legal proceedings means that the property seizure procedure is suspended, while the effects of the summons to seize the property remain in force. It is important to understand that the property cannot be sold without the agreement of the creditors.
However, the effect of this suspension varies according to the stage of the seizure procedure:
- If the seizure has not yet reached the referral stage, it will be suspended in its entirety.
- If the order for compulsory sale has already been made by the court, the situation becomes more complex.
In this second case, the simple admissibility decision is no longer sufficient to automatically suspend the auction hearing. This is where the specific mechanism for requesting a postponement of the auction date comes into play.
The role of the Commission in the foreclosure procedure
The Commission de surendettement, which is attached to the Banque de France, has special powers to intervene with the enforcement judge. According to article R. 322-28 of the Code of Civil Enforcement Procedures, the compulsory sale may only be postponed for two reasons: force majeure or at the request of the Commission de surendettement made pursuant to articles L. 722-4 or L. 721-7 of the Consumer Code (the sale may also be postponed at the request of the pursuing creditor when an appeal is pending).
Where a compulsory sale has already been ordered by a preliminary ruling, the Commission may refer the matter directly to the judge responsible for the seizure of the property, requesting that the auction be postponed. This referral is made pursuant to article L. 721-7 of the French Consumer Code. For this request to be declared admissible, the Commission must provide evidence of "serious and duly justified causes.
The procedure is precisely described in article R. 721-7 of the French Consumer Code, which requires :
- Transmission of the application by registered letter or by hand-delivery with acknowledgement of receipt to the court clerk's office
- A minimum of fifteen days before the planned sale date
- The full names and addresses of the debtor and the pursuing creditors
- A justification of the serious causes invoked
- Production of a statement of income, assets and pending legal proceedings
Unlike other claims, the Commission's claim can be upheld even after the orientation hearing, which is a notable exception to the general rule that claims should be concentrated at this stage of the proceedings.
The power of the enforcement judge to deal with overindebtedness
The judge in charge of protection litigation, in accordance with his or her role within the judicial court, must make an independent assessment of the "serious the reasons given to justify the postponement. Case law shows that it examines in particular:
- The actual financial situation of the seized debtor
- The chances of success of a conventional recovery plan
- The existence of alternatives to forced sale, such as an amicable sale
It is important to note that the judgment rejecting the Commission's request for a postponement cannot be appealed. As stated by the Court of Cassation in a ruling handed down by the 2nd Civil Chamber on 29 September 2011 (no. 10-27.658), this inability to appeal constitutes a public policy objection that the court must raise of its own motion in accordance with article 125 of the Code of Civil Procedure.
Procedural strategies for debtors in difficulty
Debtors in difficulty have a number of levers at their disposal to try to preserve their home by taking advantage of the procedural deadlines and the protection offered by the various stages of the over-indebtedness process.
Optimum timing for filing
The time to file for overindebtedness is a strategic one:
- Filing before service of the summons to pay valid as a seizure of property avoids the need to initiate the seizure procedure.
- A deposit between service of the summons and the orientation hearing allows the proceedings to be suspended.
- Filing after the orientation hearing will require intervention by the Commission to request a postponement.
In the first situation, the debtor benefits from the most comprehensive protection, as no enforcement measures can be taken against him once his case has been declared admissible.
From theory to practice: the Commission's choices
The Commission de surendettement has three main options for dealing with debtors who own their own home:
- Drawing up a conventional recovery plan to settle debts
- Recommending a personal recovery procedure with compulsory liquidation
- Putting in place a moratorium to allow the debtor to sell his property
In practice, for a property owner who has taken out a mortgage, the Commission generally chooses the third option when the amount of the debt is too high in relation to the debtor's ability to repay.
This creates a paradox: the Commission that can request the postponement of a forced sale is also the one that, in its own recommendations, generally prescribes that the debtor sell his property. It will therefore be reluctant to request a postponement of the auction from the enforcement judge, since it would itself recommend a sale as part of the treatment of the over-indebtedness situation.
Furthermore, when the Commission refers the matter to the enforcement judge, the latter can only postpone the sale, without being able to freeze the procedure permanently. This new sale hearing must be scheduled within two to four months, in accordance with article R. 322-29 of the French Code of Civil Enforcement Procedures.
This is why this limited postponement often merely delays an inevitable outcome, without resolving the fundamental issue of the debtor's debt.
Recourse to the over-indebtedness procedure is therefore recommended, not to avoid the sale altogether, but rather to sell under better conditions when no other solution is possible. The moratorium granted by the Commission is generally accompanied by an interest freeze, thus limiting the increase in debt. What's more, the moratorium can last up to two years, and the period granted very often exceeds one year, giving the debtor much more time than under the seizure procedure to carry out an amicable sale under optimum conditions.
The importance of advice in this situation
It may be useful to consult a specialist lawyer to assist you in this type of dispute.
Depending on your matrimonial regime (separation as to property or community property), the implications may also vary, particularly if the seized property is part of the community or if it belongs to one of the spouses. The presence of a personal guarantee given by a third party may also influence the strategy to be adopted.
In some cases, if the personal recovery procedure is ordered and the debtor has very few assets, the wiping out of non-business debts (with the exception of maintenance claims) may be a favourable consequence for a fresh start.
Sources
- Consumer Code, articles L. 721-7, L. 722-4, R. 721-7
- Code of civil enforcement procedures, articles R. 322-28, R. 322-29
- Court of Cassation, 2nd Civil Division, 29 September 2011, no. 10-27.658
- Banque de France website on the treatment of over-indebtedness situations
- Information from the Ministry of Justice on eviction and property seizure procedures
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