What to do in a case of over-indebtedness when you need credit

Published on : 18 March 20204 min reading time

Over-indebtedness is the enemy of every entrepreneur and every business. Indeed, it prevents the onset of a form of bankruptcy. Nevertheless, banks have developed solutions to deal with this problem. Thus, companies have an opportunity to make a fresh start. So how do you provide credit in the event of over-indebtedness?

Over-indebtedness

According to Article L330-1 of the French Consumer Code, a situation of overindebtedness arises when a debtor is unable to repay all of its debts. He or she is faced with a permanent need for liquidity. As a result of a drop in income, the person in question suffers a forfeiture that no longer allows him to pay his monthly credits. In such a way that the risk of being registered with the Banque de France, particularly in the FCC (Fichier Central des Chèques) and FICP (Fichier des Incidents de remboursement des Crédits aux Particuliers) files, is high. Act 89-1010, established in 1989, combats the problems of overindebtedness. Moreover, this legislation has two main objectives: to prevent the growth of financial instability among indebted persons and to ensure that creditors are guaranteed part or all of the sums debited. At the first signs of indebtedness, an application to the Over-indebtedness Commission must be made. This commission will analyse the debtor’s income, expenses and real estate. However, by going to this site, over-indebtedness solutions are assigned.

The procedure of judicial reorganisation

The receivership acts on companies that are in suspension of payments. This procedure allows the continuity of activities, the maintenance of employment and the discharge of an entity’s debts. The court then carries out an economic and social study of the entity. As a result, the judge appoints a legal representative who takes care of all or part of the administration with or without the owner of the business. The company must file an application for proceedings with the relevant court within 45 days of the suspension of payments. However, an observation period is set up to allow the company’s future to be conditioned. Possible solutions are then to be prevented. First, there is the recovery plan of less than 10 years. At the end of the reorganization, if the business obtains sufficient sums to reimburse the debts related to the procedure, the application for a business loan is suggested. In a second stage, the total or partial abandonment of the company or the judicial liquidation occurs if the recovery remains impossible.

Obtaining credit in the event of overindebtedness

There are different procedures for resolving over-indebtedness. Pawnbroking is a way out for urgent money needs. It consists of depositing an object of value at the Crédit Municipal in order to benefit from a sum of money in return. The object thus plays the role of a guarantor. Nevertheless, it is returned as soon as the borrowed money is fully repaid. In another way, the mortgage credit allows the debtor to easily benefit from a loan by being registered. His residence or dwelling acts as guarantor in the event of repayment of outstanding loans. The sale with right of repurchase refers to the temporary seizure of real estate with a possibility of repurchase. At the beginning, it ensures the repayment of the debts. Then, once financial stability is rebalanced, the prospect of obtaining a loan is considered to allow the repurchase of the real estate. This procedure takes place over a period of 6 months to 5 years. Applying for a loan abroad may prove plausible to settle the over-indebtedness. Indeed, the Banque de France does not have bank identities in foreign countries. However, it is advisable to confide in the banks that are aware of the borrower’s financial problems to avoid the case of non-repayment. In addition, the policies of credit institutions differ depending on the country.

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