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13 June 2003
In France there is no personal bankruptcy law, except in the context of fault and lack of assets in liquidation proceedings.
However, a law exists on so-called 'overindebtedness'. The act was enacted on December 31 1989 and its main feature was the creation of a conciliation commission under the direction of the secretary of the Bank of France. In each French district there is a conciliation commission which has six members, of whom the prefet is the president (other members include the district tax manager, the local manager of the Bank of France, and customer and financial credit organization representatives).
Certain conditions must be fulfilled before individuals may seek the help of the conciliation commission. The procedure only applies to individuals residing in France who are
not businessmen, artisans or farmers. Moreover, the individual's overindebtedness should
not have its origins in the professional sector, and the claimant's request must be in good
faith (ie, he is clearly incapable of recovering his debts). These requests are usually
accepted by the conciliation commission (91% of claims are accepted).
The 1989 act was revised twice in 1995 and 1998. The amendments allow the conciliation commission (at the request of the debtor) to make recommendations to the judge, who must approve its recommendations, in the event of disagreement between the creditors.
The act was amended in mid-March 2003, especially with regard to the legal information that must be given to customers by financial institutions and the measures which financial institutions must put in place to prevent overindebtedness from occurring. This follows statistics showing that the profile of those availing of the overindebtedness procedure has changed.
Consumer credit companies increasingly act as agents to banks which, under a strict legislative framework, are not able to grant loans easily. In October 2002 well over 1 million people sought the assistance of the conciliation commission.
The main reasons for overindebtedness are:
A draft act aims to change the system in order to protect families against overindebtedness. This will be inspired by the legislation on company insolvency. Families will be able to sell everything they own, and in doing so will thus totally 'repay' their debt in a legal sense.
The same practice exists for company insolvency, although if the assets are not sufficient to meet the company's liability the procedure will end due to insufficient assets.
One key difference is that everything owned by a company is saleable. However, the minister responsible for the new legislation has stated that items of sentimental value should not have to be sold, and cars should not be sold if they enable the family to get to work.
For further information on this topic please contact Alexandre Gonzales at Etude Isabelle Didier by telephone (+33 1 45 08 52 71) or by fax (+33 1 45 08 41 55) or by email (email@example.com).
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