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Rehabilitation Process Details: Requirements and Outcomes

Struggling to cover your personal debt? Consider applying for debt restructuring for a change in your financial stance. If approved, you might qualify for a mainstream debt repayment plan that stretches out your obligations. On the contrary, if your debt is excessively high and unsettleable,...

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Struggling with personal debt? Seek relief through an overindebtedness application. If approved,...
Struggling with personal debt? Seek relief through an overindebtedness application. If approved, you might secure a conventional payment plan to extend your debt terms. However, if your debt level is excessively high and unpayable, you could qualify for a personal rehabilitation plan.

Rehabilitation Process Details: Requirements and Outcomes

The personal recovery procedure, as defined by the Consumer Code (article L. 742-1), offers a lifeline to individuals drowning in personal debt. Here's a breakdown of what you can expect when taking this path.

Meeting the Eligibility Criteria

To qualify for the personal recovery procedure, you must be in a critical financial situation, unable to repay all personal debts—both professional and non-professional—due and owed. Moreover, you must be acting in good faith and have not deliberately arranged for your insolvency.

Entering the Tangled Web of Debts

If you meet the eligibility criteria, you must be in an "irretrievably compromised situation," as defined in the second paragraph of article L. 724-1 of the Consumer Code. Put simply, your debt is too enormous for the over-indebtedness commission to manage, even with measures such as rescheduling payments, reducing interest rates, and other solutions to help solve the problem.

The Two Paths of the Personal Recovery Procedure

Depending on your situation, the over-indebtedness commission has two options to help you find relief:

  1. Personal Recovery without Judicial Liquidation: This approach is taken when the commission determines that the debtor owns only indispensable movable assets and goods necessary for daily life and non-professional goods vital for their professional activity. Alternatively, the assets may be of little to no value or selling them would be prohibitively expensive. The debtor can contest this decision, but it's typically not in their best interest. If the debtor contests the decision, the case usually goes back to the commission for further study.
  2. Personal Recovery with Judicial Liquidation: If the debtor has assets that can be liquidated to help settle the debt, the commission may, with the debtor’s consent, request the aid of a judge from the contentious protection court to initiate the personal recovery with judicial liquidation. The debtor is not compelled to comply with this request. If the debtor declines, the commission will continue trying to negotiate a conciliation between the debtor and creditors. However, if an agreement isn't reached, the debtor may be denied debt restructuring.

Note: The debtor’s failure to respond to the summons from the judge is considered a refusal of the seizure.

The Outcome of the Personal Recovery Procedure

The outcome of the personal recovery procedure varies depending on the case. In the event of personal recovery with judicial liquidation, the judge will issue a closure judgment after the sale of the debtor’s assets. If the sale covers all debts, the judgment will result in the wiping out of the debt. If the sale does not cover all debts, the judgment will declare the debtor as having insufficient assets. In the absence of judicial liquidation, the judge simply declares the debtor rehabilitated.

Regardless of the outcome, both judgments exempt the debtor from having to repay non-business debts, except for certain exceptions such as alimony, fines, and damages awarded to a victim. The debtor will also be listed on the Bankruptcy Discharge Register (FICP) for five years following the judgment.

What You Need to Know About Over-Indebtedness in France

  • In France, the over-indebtedness procedure (la procédure de surendettement) helps individuals who are unable to pay their personal debts due and payable.
  • The borrower submits an application to the over-indebtedness commission, which reviews the financial situation and, if deemed over-indebted, proposes solutions tailored to the borrower’s situation.
  • Debts such as alimony, fines, and damages awarded to a victim are not exempted from repayment in the event of a personal recovery.
  • A complete and truthful financial documentation is crucial for the success of the procedure.

Reference(s):* 1. Banque de France* 2. Loi relative à la consommation - Code de la consommation* 3. Accueil: Présentation

In the context of the personal recovery procedure, a debtor may apply for a scholarship to manage their personal-finance issues, particularly in debt-management, while navigating the process. However, it's essential to remember that alimony, fines, and damages awarded to a victim are not covered by debt forgiveness in this procedure, despite the outcome of the personal recovery.

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