Article Post on 04 December 2009

Over-indebtedness: Focus on the Draft Law 6021

The aim of the current bill is to amend the procedures provided for by the law dated 8 December 2000 on over-indebtedness and to introduce a regime of civil bankruptcy (faillite civile) in Luxembourg law in order to allow people with severe personal debt problems to avoid social stigma.


Introduction of a regime of civil bankruptcy in Luxembourg law

Currently, Luxembourg law has the following insolvency proceedings: bankruptcy, controlled management, concordat préventif de la faillite, special regime for liquidation of notary, specific legal disposals on cleaning-up and liquidation of insurance undertakings and establishments of the financial sectors, along with the legal disposals on the liquidation of UCIs.

All these regimes only concern commerçants, insurances undertakings or professional of the financial sector and do not concern the individual who is in a situation characterised by the déconfiture.

Luxembourg law povides that in case of insolvency or déconfiture of the debtor non-commerçant the existing procedure is found in : Article 1244, indent 2 of the Civil Code, the law of 18 March 1915 on the protection of debtors living in Luxembourg, the déconfiture in civil Luxembourg law (art. 1188, 1613 and 1913 of the Civil Code) and the law of 8 December 2000 on over-indebtedness (The “Law”).

The new regime of civil bankruptcy, as it is suggested in the bill, should be applied to private persons in a situation of over-indebtedness and whose situation is irreparably compromised (that is to say : the debtor is unable to balance its situation of over-indebtedness via the implementation of the measures provided for by the Law and its legacy situation is so deteriorated that a recovery of its situation, on the short, mid and long view is extremely unlikely).

The setting-up of such a system needs to take into account divergent interests: creditor interests, debtor interests, the prevention of an immoderate use of the procedure, etc.

Currently, the Law provides for a procedure of règlement collectif de dettes including a phase, called règlement conventionnel and a judicial phase, called redressement judiciaire.

The new system namely, rétablissement personnel, should be integrated in the procédure of règlement collectif de dettes of the Law which should include three phases:

  • the phase of règlement conventionel;
  • the phase of redressement judiciaire before the juge de Paix, and
  • the rétablissement personnel.

The procedure of rétablissement personnel leads to the divesting of the patrimony of the debtor in favour of a judicial representative, the liquidation of the assets elements of the patrimony of the debtor, the disinterestedness of creditors and the reminder of the balance (reliquat) of debts in favour of the debtor in order to allow him to start afresh.

That procedure must be well-draftedin order to avoid the debtor's using the procedure only to benefit from the debts forgiveness. That is why it is necessary to make sure that the debtor cooperates during the three phases of the procedure.


Other amendments on the Law

Besides the introduction of the system of the rétablissement personnel, the current bill aims at bringing about the following changes

  • To introduce procedural changes in insolvency,
  • To review the effects linked to the demand of over-indebtedness and to allow for safeguards in the law to ensure the debitor's collaboration,
  • To foresee the faculty to set up mesures d´accompagnememt social  in the frame of the different phases of the procedure of règlement collectif des dettes
  • To modify the lenght of the plans conventionnels de redressement
  • To allow creditors to follow the procedure.

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