Over-indebtedness is the inability of a bona fide debtor to repay the excess of debts contracted. In France, this scourge affects more than 4 million French people. The causes of this situation are multiple. It could perhaps be a question of poor financial management or a habit of living beyond one’s means. It could also be due to economic layoffs or an illness that renders the person unfit for work. It is also possible that the person has taken out too many consumer loans that he or she can no longer afford. Whatever the cause, there is no shortage of ways to get out of this disastrous situation. In addition to the emergency exits put in place by the State, the over-indebted may also opt for a credit buyback. But before doing so, it is essential to first identify the origins of the problem and then find the appropriate solution in each case
By definition, over-indebtedness indicates the situation of a person who is unable to pay his bills, debts and is in financial difficulty to face possible hazards of life. The over-indebtedness of a person or a household is due to poor budget management, gambling or alcohol/drug addiction, widowhood, job loss, illness, divorce. Despite these causes of over-indebtedness the law tries to rescue these individuals and help them to get their lives back on track.
What does the law say about over-indebtedness As of December 31, 1989, Law n°89-1010, called the Neiertz Law, was promulgated for the prevention and settlement of difficulties related to over-indebtedness of individuals. People suffering from over-indebtedness had to refer to this law if they wanted to be legally accompanied. An over-indebtedness commission was set up to help these people in difficulty by drawing up the household’s debt situation and proposing solutions such as revision of the duration of the current credit, consolidation of credits, sale of assets, etc. The Neiertz Law of 31/12/1989 was repealed on 14/12/2000 by renewing certain articles on preventive measures, including over-indebtedness commissions. A personal reinstatement procedure for the handling of compromised files has been put in place. Before 2010, at least four (4) reforms and a few modifications were recorded. It was only in July 2010 that a profound reform of the system for dealing with over-indebtedness was put in place, it was the Lagarde Law which, moreover, led to other reforms of the existing procedures. Among others, it is necessary to recall the Law n°2013-672 for the separation and regulation of banking activities, the Law n°2014-344 (Hamon Law) relating to the consumption, the Law n°2014-366 (ALUR Law) for the access to housing and renovated urbanism, the Ordinance n°2016-301 relating to the code of consumption, the Law n°2016-1547 on the modernization of justice in the 21st century, the Law 2016-1691 (Sapin 2 Law) on transparency, the fight against corruption and the modernization of life, applicable on January 1st, 2018, for the suppression of the amicable phase of conciliation in the absence of real estate in the file of over-indebtedness. There is the proposal of a conventional plan of reorganization which creditors can refuse. The absence of a response within 30 days is considered an agreement
Over-indebtedness, what to do?
When a person is in a situation of over-indebtedness, whatever the cause, he or she may express feelings of shame and loneliness. It should be noted that cases of over-indebtedness are currently becoming more and more numerous. The first reflex is to hold your head high and face the problem with peace of mind. The simplest and most direct way is to contact the bank and the creditors to explain the situation to them. You should try your luck and hope that the bank will decide to transform the revolving credit into a personal credit. This is already a solution if one has the capacity to negotiate. With the creditors, if they are not too numerous, it is advisable to negotiate payment deadlines. To convince them, you need to show them a climate of confidence, for example by presenting them with a forecast budget that is reconcilable with your cash flow, i.e. an acceptable debt margin. The judge can help to force the hand of these creditors except that the over-indebted person must pay alimony to his or her ex-spouse, or perhaps he or she is a debtor of the public treasury or a criminal conviction. Contacting the over-indebtedness commission to propose a conventional recovery plan is one possible solution. The commission may provide for a rescheduling of debt payments or the reduction or, if possible, the cancellation of the interest rate or the remission of certain debts. The reorganization plan must leave a sufficient amount to live on for the individual and his or her family. Another solution is the filing of an over-indebtedness file with the Bank of France or its departmental agency, provided that the individual is domiciled in France and can justify the inability to pay charges and personal credits. The commission will intervene to find financial solutions by freezing sanctions and reminders pending the recovery plan. The solution, perhaps the penultimate resort, is to bring together aid associations, for example, a consumer association, the social service of the town hall, a social and family economy advisor from the CAF, etc. The commission will then intervene to find financial solutions by freezing sanctions and reminders while waiting for the recovery plan. The association can act as an intermediary with the over-indebtedness commission, but in the meantime, it can help to reduce expenses. Buying back credit can be an effective and advantageous solution if it is used prudently, otherwise, it is back to square one, at the risk of legal proceedings or being registered with the Banque de France
What are the causes of debt?
Over-indebtedness sometimes occurs when a person is unable to bounce back financially and has recourse to credit institutions to acquire new equipment or for his or her current needs, he or she unerringly enters the spiral of over-indebtedness. For an individual, bank debts are often caused by the drop in purchasing power that led the person to take out a loan. Faced with the rising cost of living, he thought that this could help him cope with the difficulties and live a healthy life. But the expected effect is the opposite. He is drowning in debt. Job loss and disability can also cause this situation. Loaning cash to a reliable individual who has not reimbursed anything, separate, long haul hospitalization, dependence on betting, or mixed drinks or cannabis are on the whole explanations behind this basic circumstance.
How can this situation be avoided?
If you are planning to take out a personal loan to pay off your current debts when you are already having trouble paying your loans, it is better to look for other solutions such as selling your real estate or your car, for example. Let’s suppose that you have taken out a home loan of 1000 euros per month and a household equipment loan of 600 euros per month. In total, that makes 1600 euros. If at a certain month you have a health problem and you need 600 euros. If we found this amount borrowed via a personal loan that we have to pay back 50 euros per month, we then find ourselves the following month with 1650 euros of credit to pay back. This risks suffocating the borrower in the long run and at the same time, he is on the verge of exceeding the indebtedness rate. To relieve the difficult end of the month, in this case, the debtor could start to buy back credit
Who to appeal to if one is over-indebted?
First of all, if the excess debt is due to a habit of making unnecessary purchases, it is advisable to learn how to tie up your budget. Management training is available to help the debtor learn how to reduce his expenses. If the urge to spend too much is due to an emotional lack to fill the void and have fun, the debtor should take stock of himself. If this is due to another personal reason, a consultation with a psychologist is recommended. -Then, the person in difficulty can ask his bank for help. The bank could reduce the due date of his debts if the nature of his difficulties constitutes an exception, for example, during a divorce, or a disabling accident, etc. The latter could reduce the due date of his debts if the nature of his difficulties constitutes an exception, for example, during a divorce, or a disabling accident. However, credit can only be rescheduled if the debtor can count on a certain amount of money coming in, such as the sale of his real estate… In doing so, he would have to attach supporting documents for his request to reschedule each of his debts. The payment period cannot exceed 2 years. Loan renegotiation could also be interesting if the difference between the rate of the old loan and the new rate is significant. However, this should not occur too late in the repayment schedule. It should also be remembered that this procedure entails a series of rather expensive fees. It is also possible for the student to attempt to turn to a social worker. The latter could give him a helping hand by directing him to the right structure. Although this professional is often called upon to ask for social assistance, a food package, etc. when you are in a precarious situation, she could advise you on the steps to take. -To get out of this impasse, there is also a solution to credit grouping. Above all, the indebted person would have to contact his creditors to spread out or even suspend his repayments. It is important to know that suspending the monthly payments of credit for a determined period of time is feasible under certain conditions. In this approach, he can contact a broker to help him build the credit redemption file. Or he can also sort among the buy-back organizations and select the one with the best rate. This operation could lighten his budget while rebalancing the balance. It makes it possible to pay only one reduced monthly payment for the entire duration, to be able to increase one’s savings, to be able to finance a particular project. However, it is not granted to everyone and must follow certain standards. In addition to the solvency criterion, there are also financing guarantees and financial stability. The owner of a property is thus more likely to be granted a debt restructuring. Note that houses under construction, gambling debts, loans covered by insurance are excluded from this debt restructuring. – The debtor can also sell his house or apartment with a repurchase agreement. He could thus have financial funds at his disposal in a minimum amount of time while avoiding bank filing and over-indebtedness. In this solution, a consultation with a notary is required. The latter is best placed to estimate the property at its fair value. However, it is important to note that to be successful in this process, one must have a stable income and find an honest investor. The costs of this operation vary between 25 and 40% of the value of the property and the occupancy allowance is approximately 5%. And the other side of the coin is that if we can’t find an organization that can finance the buyback during the 60 months of the sale, the property will become the property of the investor. – If the debts contracted are not of a professional nature, the person could ring the doorbell of the over-indebtedness commission of the Ministry of Justice and Freedoms. The procedure is free of charge, but it is only reserved for over-indebted French citizens. To do so, they will have to submit a complete file to the secretariat of the Banque de France. If the social worker could accompany them, it would be better. The commission has the right to pronounce the admissibility or inadmissibility of the request.