The indebtedness of private individuals, whether related to housing or cars or other costs, is a widespread phenomenon. Debt can be problematic, for example, when a person’s account is regularly debited, if they cannot pay their bills in full or if they cannot make ends meet. It is important to react as early as possible if a person feels that they have lost control over their financial situation. They can either turn to
- the social office “office social” of their municipality of residence
- the information and advice service on over-indebtedness of the Ligue médico-sociale
- the information and advice service on over-indebtedness of Inter-Actions asbl
These services can provide free advice, analyse the financial situation and provide information concerning the collective debt settlement procedure.
In the Grand Duchy of Luxembourg, over-indebtedness is defined as the manifest impossibility of "settling all non-business debts due or to become due". The causes can be manifold, and many cases of over-indebtedness result from life-changing incidents, such as the loss of employment, long illness or divorce. Some people live beyond their means and are unable to repay their debts. Sometimes a combination of loans with high interest rates lead to the inability to cover all repayments.
In order to enable the financial recuperation of people concerned and to allow them to lead "a life according to the principle of human dignity", the loi du 8 janvier 2013 sur le surendettement (law of 8 January 2013 on over-indebtedness) sets up a collective debt settlement procedure.
The collective debt settlement procedure has three phases:
- conventional debt settlement phase
- judicial recovery phase
- personal recovery phase.
The first phase, settled before the Commission de Médiation en matière de surendettement, is called the "conventional debt settlement phase". This allows debtors to pay off their debts to creditors with the help of a conventional debt settlement plan that cannot exceed the maximum duration of 7 years set by the Mediation Commission.
The debtors' amicable settlement efforts towards their creditors are indispensable before the initiation of the judicial phases (phases 2 and 3) of the collective debt settlement procedure.
On the one hand, the collective debt settlement procedure engenders the suspending of interest rates, salary attachments and assignments. It may include various measures that benefit the debtor, such as a partial relief of debts.
On the other hand, the procedure can be lengthy and requires considerable effort from the debtor. A willingness to get out of over-indebtedness and debtors’ close cooperation with the social services are prerequisites for the procedure’s success.