From 664.9 billion USD in 2005, household debts continued to evolve to reach 1.189 billion USD in 2015, which represents an increase of 44% in a decade. The rise in spending on housing and the proliferation of loans are causing a large number of households to find themselves overwhelmed by their debts. How do we define this situation of over-indebtedness? What are the latest figures for over-indebtedness in France? How to get out of it, how to anticipate it?
Under French law, the situation of overindebtedness of a natural person “is characterized by the manifest impossibility for the debtor in good faith to face all of his non-professional debts due or due ” (article L. 330- 1 of the Consumer Code). In practice, a person is said to be over-indebted when he can no longer pay his unprofessional debts such as bank loans, current expenses, water and electricity bills, rent, and this in a sustainable manner. It is considered that a household whose debts exceed 33% of its income is at risk of over-indebtedness.
In general, and especially since the 2000s, the explosion in household debt is due to the rise in property prices. The costs necessary for housing, forcing a large number of French people to go into debt. This situation also occurs when the person has taken out too much consumer credit or when he has to combine with a lasting decline in his resources, which can be caused by difficulties such as illness, separation, or job loss.
In total, the number of households in the process of deleveraging can be estimated, on the basis of the data recorded in the FICP (File of incidents characterized by repayment of loans to individuals), to approximately 827,489, in December 2016. The number of files deposited with the secretariats of the over-indebtedness commissions from January 2016 to December 2016 amounted to 194,194 files. Over 12 rolling months, the number of files filed is down 10.6%.
In the fourth quarter of 2016, the level of debt observed on average for all the files admissible by over-indebtedness commissions amounted to almost 39,742 USD, the average debt excluding property debts being 28,958 USD. Generally, debt consists of 76.6% of financial debts, for 11.6% of arrears of current charges, and for 11.8% of other debts.
To help households that can no longer meet their debts, a specialized commission has been set up. It proposes measures and recovery plans aimed at restoring the financial situation of the over-indebted person, in particular by postponing, spreading, or canceling certain debts or the sale of certain goods. In practice, the debt commission will try to establish a conventional recovery plan with a maximum duration of 7 years negotiated between the borrower and its creditors.
This agreement may include an extension of deadlines or a reduction in debts, adjustment of interest rates, within return, the sale of one or more of your real estate or movable property, or the commitment to no longer go into debt as long as there are unpaid debts. Beforehand, the commission will assess a minimum amount of resources. This amount should be at least equal to the amount of the RSA, to allow households to meet the expenses of everyday life.
Note: a person who files an over-indebtedness file is automatically registered with the FICP (File of incidents characterized by repayment of loans to individuals).
When the debtor’s financial situation is very precarious and when no recovery plan can restore his financial equilibrium, the personal recovery procedure can be put in place. It consists of erasing the debts of the over-indebted person. This can be done with or without compulsory liquidation, depending on whether the over-indebted person has goods for sale or not.
In the event of proceedings without judicial liquidation, the decision must be pronounced by the magistrate who proceeds to verify the regularity and the merits of the recommendation. The judge’s decision results in the cancellation of all non-professional debts, with a few exceptions such as maintenance debts, debts paid by bail, criminal fines, and damages awarded to a victim.
The best way to avoid having to face an over-indebtedness situation is to anticipate the first financial difficulties. If too many credits accumulate or if resources are brought to decrease, think of the repurchase of credits or the restructuring of debts.
The purchase of credits is indeed a good alternative to restore the balance of a budget. The principle is simple: it will be a question of regrouping all the debts of a home in only one loan, so that it is possible to reduce the monthly payments. The more advantageous rate of the new consolidation loan, and the extension of the term of the single credit indeed makes it possible to reduce the amount of the monthly payments.
This reduction can reach up to 60% of the credit charges borne by the household. Also called credit restructuring, this operation is aimed at a wide audience. Property owners to tenants, civil servants, private employees, liberal professions, and seniors, many households can embark on a successful loan buyout.