Europe’s over-indebted households at risk of modern-day debtor’s ‘prison’

  • EU households need relief from over-indebtedness
  • Policymakers must standardise patchwork of EU rules on consumer insolvency
  • Harmonising rules would help prevent swathes of people saddled with debt

BRUSSELS, 20 January 2022 – 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.

A new Finance Watch report “From debtor prisons to being prisoners of debt” shows that consumers in the European Union face unequal access to relief when personal debts outstrip ability to pay them. 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. What’s more, the complicated network of insolvency procedures also makes lenders hesitant to sell their credit products cross-border, stifling competition and limiting the EU goal of creating a strong, single market.

Finance Watch lead author Paul Fox commented: “A new beginning allows people to rejoin society both economically and socially, whereas the over-indebted rack up a huge bill for taxpayers. There is no economic or moral justification for leaving over-indebted people behind, pushing them into poverty. Policymakers need to take action now.”

Over-indebted households, and households going through financial difficulties due to circumstances such as the Covid crisis, get hit on multiple fronts. First, they often must pay for all insolvency proceedings, leaving them saddled with a costly legal bill. Second, households generally must prove that they sincerely attempted to repay their debts, and that they have tried to resolve the problem out-of-court. Third, thresholds set on the amount of debt eligible for insolvency procedures and high minimum amounts for creditors to recover limit who can access procedures.

Discharge issues around cancellation of a debt due to bankruptcy are particularly problematic across Europe, where the average debt discharge period is five years. Some EU Member States imprison those who fail to adhere to court-ordered repayment schedules in accordance with debt discharge agreements. Jail sentences can be passed regardless of reason, whether a debtor has refused to pay or simply cannot.

Fox added: “Any discharge procedure beyond three years is not even close to helping people in the long run. Too often, debtors’ assets are seized or part of their income is paid to creditors. This undermines their basic human right to a dignified life and snatches away any chance of a fresh start.”

Calls for policy at European level, ending incarceration

The need for sound consumer insolvency rules has long been recognised, but efforts to date have failed to ensure debtors have the ability to access relief procedures or to help them regain a sound financial footing. Yet 14 years ago, in 2007, Member States showed unanimous support for recommendations provided by the Council of Europe to address debt problems and over-indebtedness.

Despite calls at European level to fix the problem, barriers to access and discharge remain across the European Union. Two states simply have no consumer insolvency rules.

Measures needed to address over-indebtedness

A big proportion of Europe’s people struggle to repay their existing debts. Data show that 21.9% of people living in the European Union are at risk of poverty or social exclusion. Some 32% say they cannot afford unforeseen expenses equal to one month’s income, according to 2019 data. Compounding this, Europe’s consumer credit market in recent years has been awash with rampant irresponsible lending practices and a lack of regulation of risky new loan products such as payday loans and buy-now-pay-later schemes. Much of the blame falls on outdated consumer credit market rules now under review. To make matters worse, these unregulated risky loans have to a large part been mis-sold to low-income households, who are unable to afford the high interest and fees associated with these products.

Over-indebtedness and human health

Being over-indebted harms people’s health. A growing wealth of evidence suggests a relationship between financial difficulties and poor mental health. A 2019 study from the University of Singapore found that debt impairs decision-making and psychological functioning. The over-indebted are nine times more likely to suffer from mental and physical health issues, including clinical depression and diabetes and heart conditions than the general population. Common triggers of their over-indebtedness – such as job loss, divorce, illness, death in the family, and failure in business – may also continue to place a high mental burden on the individual. Finance Watch sees a moral obligation to build a new harmonised framework for personal insolvency.

Fox concluded: “The Covid crisis was an untimely blow for people living paycheck to paycheck. This problem appears to have been compounded by growing and widespread mis-selling of popular risky low-value loans to low-income households as these loans are currently not in scope of the Consumer Credit Directive.”

– Download the report: new Finance Watch report “From debtor prisons to being prisoners of debt” (20p.)

For more information, contact: James Pieper, Media Relations, Finance Watch on +32 496 51 72 70 or at

Notes to editors:

About Finance Watch

Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.

University of Singapore study

Qiyan Ong, Walter Theseira, Irene Y. H. Ng. Reducing debt improves psychological functioning and changes decision-making in the poor. Proceedings of the National Academy of Sciences, 2019;

Finance Watch blog

What the Squid Game reveals about the problem of over-indebtedness, and why we should have structural answers to it by Emily Glantz, 16 December 2021

Finance Watch publications

Consumer credit market malpractices uncovered, 9 February 2021

Finance Watch press release: European Commission legislative proposal on CCD, 2 July 2021



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