Report – From debtor prisons to being prisoners of debt

20 January 2022

Report

Making the case for harmonised EU consumer insolvency rules.

A Finance Watch report showing that consumers in the European Union face unequal access to relief when personal debts outstrip ability to pay them.

  • Households in Europe need revamped debt relief measures to better cope with over-indebtedness, but rules in Europe may not keep them out of a modern-day version of debtor’s prison.
  • The over-indebted get little help from the continent’s patchy mix of insolvency frameworks, which lack a standard set of rules.
  • Lack of EU legislation implementing best practices makes it hard for people to seek debt relief, and ultimately hinders them from making a fresh start.

Recommendations for an EU consumer insolvency directive

  1. Ensure that payment plans and asset liquidation are compatible with en suring a decent living standard and debtors capacity to repay, including a list of exempted assets and income from discharge procedures and guaranteeing a minimum level of income.
  2. Ensure as full a discharge of debt as possible in three years, procedures should not exceed this limit.
  3. The good faith of debtors should be assumed as a starting point and no criteria on the amount of debt (too low or too high), minimum payment amounts to creditors should be used to limit access to debt discharge procedures.
  4. Automatically open the debt discharge procedure and put a moratorium on debt collection when a consumer is identified as unable to meet their contractual obligations to pay their debts. Precise trigger points for the procedure should be defined and should take into account the definition of non-performing loans in the European Union.
  5. Refer debtors to available debt advice and ensure administrators of debt discharge procedures are fully neutral, aiming to secure a successful process for both debtors and creditors.
  6. Establish key indicators and require authorities to collect data to report on the effectiveness of the new directive and levels of enforcement.
  7. Procedures should be explicitly available and tailored to no-income, no-asset (NINA) and little-income, little-assets (LILA) debtors as well, including through low-cost or free processes.