Over-indebtedness: Seeking Legal Solutions to Debt Problems

1. OVER-INDEBTEDNESS Seeking legal solutions to debt problems Dr. Geert Lankhorst Ministry of Justice The Hague, Netherlands IEEI Dubrovnik 14 / 15 - 05 2009

2. A short survey - two topics • 1. Dutch legislation on consumer insolvency since 01-12-1998 • 2. Recommendation 2007/8 of the Council of Europe IEEI Dubrovnik 14 / 15 - 05 2009

3. Chapter 3 of the Dutch Bankruptcy Act • Contains a special procedure for overindebted private persons, • who are granted access to a court procedure of three years, under supervision of a court appointed trustee / administrator. • If the debtor can explain that he is in good faith, and if he fullfills his obligations for three years (=maximum effort to pay off the debts)… • … the debtor can obtain in the end a discharge (amnesty) of the remaining debts IEEI Dubrovnik 14 / 15 - 05 2009

4. current Dutch approach • obligation to have a central register of (serious) debts, including consumer credit and house rent debts and mobile phone debts. • obligation to check before lending • not checking - or checking and finding a bad result - and lending anyway while debtor is overindebted = breach of duty to provide the credit “in good faith” • striking a fair balance = not only focussing on the debtor being in good faith when entering a consumer credit contract IEEI Dubrovnik 14 / 15 - 05 2009

5. encouraging & enforcing out-of-court settlements • since January 1st 2008, insolvency judge can force a creditor - who opposed an amicable debt settlement in an unreasonable way - to agree with the proposed debt settlement (new article 287a of the Dutch Bankruptcy Act) • Unreasonableness = judge made law IEEI Dubrovnik 14 / 15 - 05 2009

6. Stand still judgment • New article 287b Dutch Bankruptcy Act • In an urgent situation of an overindebted household, (for example a house eviction) the insolvency judge can give a court order to creditors to reach a stand still • for a maximum period of six months. • If an amicable debt settlement could succeed. IEEI Dubrovnik 14 / 15 - 05 2009

7. Monitoring the policy results • each year the Minister of Justice sends a monitoring policy report to Parliament • 70% of the applicants who are granted access by the judge obtain after three years the discharge of debts • the new provisions appear to be quite a success: strong incentive for creditors to solve “their own” debt problems out of court IEEI Dubrovnik 14 / 15 - 05 2009

8. overindebted households also in member states that only recently discovered free credit market • Not a specific western European problem, but unfortunately a common problem… • …that has worsened since the credit crisis • 26th Conference of European Ministers of Justice-Helsinki (April 2005) defined it as a common concern: adoption of Resolution on Seeking Legal Solutions to Debt Problems in a Credit Society IEEI Dubrovnik 14 / 15 - 05 2009

9. Resolution on Seeking Legal Solutions to Debt Problems in a Credit Society • What is the value of this Resolution? • A political and international recognition of the need to find solutions to solve debt problems in European societies • Aim: a European Recommendation, generating ideas for an acceptable minimum level of consumer protection IEEI Dubrovnik 14 / 15 - 05 2009

10. Resolution on Seeking Legal Solutions to Debt Problems in a Credit Society • Follow up to the Resolution: an expert report (September 2005) on legal solutions to debt problems in a credit society, drafted by the Department of Law of the University of Umeä, Sweden (Prof, Kiesilainen) IEEI Dubrovnik 14 / 15 - 05 2009

11. The Kiesilainen Report • Recognises that over-indebtedness causes a lot of suffering, social and health problems and exclusions for families. Link to education, social cohesion. • The legal development in European states has been very different. Need for harmonisation. • Prevention of debt & debt-adjustment procedures, • Suggests the drafting of a Recommendation on the policies in the field of over-indebtedness • Need to establish, examine and share good practices (legal and practical) • Strike a fair balance between the responsibility of the creditor and the debtor IEEI Dubrovnik 14 / 15 - 05 2009

12. Multidisciplinary approach • Debt problems cover wide variety of social, financial, legal and psychological problems, too vast to define within the limits of a legal instrument • close link to poverty and social exclusion (vulnerable group that has little interest in a European level playing field on credit) • legal solutions are powerful, but have a limited range… • …so they must be embedded within a wider set of multidisciplinary measures. IEEI Dubrovnik 14 / 15 - 05 2009

13. 4 Types of measures in Recommendation & Explanatory Report • Prevention measures • Measures to alleviate the effects of overindebtedness • Measures to facilitate rehabilitation of overindebted households and promote their reintegration into society • Implementation / follow up measures IEEI Dubrovnik 14 / 15 - 05 2009

14. COE – Recommendation & Explanatory Report • First European legal instrument on consumer debt problems • starting point for discussion on national, regional and local levels • Accepted by the Committee of Ministers 20th June 2007 (Recomm. 2007, 8 ) • towards a European minimum level of policy combatting overindebtedness ? IEEI Dubrovnik 14 / 15 - 05 2009

15. What to do now ? • Member states need not re-invent the wheel again - but use the preparatory work of the COE in their legislation and policies • Linking the Council of Europe’s pioneer work to other initiatives, sharing expertise such as IEEI. • www.coe.int / activities/legal affairs/legal cooperation/recommendation nr. 2007-8. IEEI Dubrovnik 14 / 15 - 05 2009