Debt: What is debt? How to avoid over-indebtedness and litigation? All questions that bansteadathletic.co.uk answers in this guide.
- What is debt?
- Household debts
- The Central Personal Credit Office
- Checking claims
- The consequences of non-payment of a loan
- Be registered with the National Bank and be blacklisted.
- Possible support services
- What are the alternative means in the event that borrowing is necessary?
A. What is debt?
Definition: A debt is a sum of money that is borrowed, and thus must be repaid, for the purpose of financing a project or resulting from the use of a credit card.
Taking out a credit is sometimes a necessity. However, it is essential that you find out how this could affect your budget. And understanding the difference between good and bad debt is crucial, as mismanagement can lead to litigation. Find out all about it through our computer graphics.
A.1 A good debt
Definition: A good debt is a sum of money contracted for a specific and justified purpose, usually for improvement. It does not generate litigation.
Its purpose is to make a profit or increase revenues. Included in this category are the following:
- Student loans to finance studies;
- the renovation loan to increase the value of a property;
- Mortgage credit to buy a house or apartment to live in or rent;
- loans to start or buy a business.
A.2. A bad debt
Definition: A bad debt is a borrowed sum that does not generate any revenue but creates a constant indebtedness. It is very often contracted due to a lack of money available to purchase a good. In the event of non-repayment, you may find yourself on file at the national bank. The following are considered as such:
- recourse to consumer credit: they are not necessary, particularly in view of the financial situation. Examples: the latest iPhone, an Apple MacBook Pro computer, a beautiful ring, …
- credit cards: if you don’t pay back the expenses on time, you will have to pay interest, which increases the cost of your expenses considerably, so you will have spent more than you expected.
- personal loans and restricted credit, such as renovation loans, mortgages, car loans, …
It is therefore crucial to avoid unnecessary expenditure when a limited budget is available in order to limit the risk of litigation. For example, opting for a used car may be a solution when there is a real need. And in this case, it is possible to compare the different used car credit offers.
If you really need credit, it is preferable to opt for a loan to be paid back over a shorter period of time and to pay the monthly instalments on time in order to avoid overspending. But to limit your debts, it is advisable to pay in cash or to put money aside to build up a reserve in case of hard times.
B. Household debts
Taking out a loan for two, to buy a house for example, is very common. It can also happen that each person brings a few debts into the couple. Therefore, the liability for the claims depends on the matrimonial regime chosen, i.e. marriage, de facto cohabitation or legal cohabitation. You will therefore not be bound in the same way whether you have taken one or the other.
A large unforeseen expense can quickly cause an account to go into the red and lead to a legal dispute, or even be registered with the national bank. However, a well-managed account can allow you to treat yourself, for example, to dinner at a good restaurant by paying with your credit card. The important thing is to pay back your expenses on time. On the other hand, being late will mean compensation (high interest rates), which can lead to debt to pay them back and … a snowball effect.
B.1. Married couple: repayment of debts
The matrimonial regime has a huge impact on how debts will have to be repaid. Community of property, separation of property or specific clauses linked to the marriage contract?
B.1.a. The legal regime (community of property)
Debts contracted before marriage are defined as personal: they do not belong to the couple. For example, think of a house that belongs to only one of the spouses. On the other hand, joint debts are :
- those contracted together during the marriage;
- interest related to personal debts (same logic as income from personal property falling into the community of property);
- those concluded by one of the spouses to meet the needs of the family or to protect a common good;
- those related to a gift or inheritance made to both spouses.
B.1.b. Separation of property
Claims, income and property are, as mentioned in the name, separate and therefore personal. They are therefore linked to the person who contracted them. However, it is essential to note that many financial institutions require the agreement and signature of the spouse. This brings us back to the rules relating to community of property.
B.1.c. The regime of universal community
Here, all assets are pooled, acquired before or during the marriage. This is also the case for debts. The partners are therefore obliged to repay them together.
B.2 Legal and de facto cohabitants: repayment of debts
The rules of separation apply in this case: the partners must therefore repay together the debts incurred for the needs of the household and the education of the children. Debts contracted for personal purposes remain the responsibility of the person who claimed them. But to find out what happens in the event of divorce, please read our article “The consequences of a divorce on your outstanding loans”.
C. The Central Individual Credit
Linked to the National Bank of UK NBU has the primary objective of combating overindebtedness. It therefore records all the loans granted to individuals as well as any possible defaults on payments. Lending institutions must consult this list of credits before granting or modifying a loan. Thanks to this, financial institutions have all the information they need to assess the risks involved in granting a loan, particularly if they consider that this could lead to over-indebtedness and thus to legal proceedings.
The data are, within eight days (legal obligation of the credit provider), deleted from the file of the NBU as soon as the loan is repaid or, in the event of non-payment, after the end of the legal data retention period. And when you are blacklisted, it means that you are registered with the national bank.
D. Checking your claims
In this world of over-consumption and rising prices, it is crucial to avoid the vicious circle of indebtedness, which too often leads to over-indebtedness. This is why keeping a certain control over your debts is essential in order to avoid, as far as possible, ending up on the national bank’s books.
Your banker is well placed to help you avoid this infernal spiral. Sharing your financial situation with him or her will allow him or her to find the best solution according to your situation. For example, think about staggering your expenses: your monthly payments will be lower, which will help you on a daily basis and may allow you to avoid litigation. A credit repurchase loan can also be a solution: all your debts will be combined into a single loan and, therefore, a single monthly payment.
E. The consequences of non-payment of a loan
Repaying credits can sometimes be difficult, and a payment default can have several consequences:
- You are registered with the national bank and thus appear on the black list of the Central Individual Credit Register (point C for more information on the CCP). If you are in default of payment for more than three months and you do not regularize the situation, your name will appear on the blacklist for 10 years. On the other hand, if you repay the debt due, your name will be deleted after one year.
- Your lender will be able to seize various guarantees (deposit, salary, mortgage) according to the conditions set by law.
- Mortgage: seizure of the property which serves as a guarantee.
- Guarantee: seizure of the guarantee if the credit is not regularized after formal notice.
- Salary: seizure of salary in the event of non-payment, but this must be strictly noted in the contract of the main loan. However, be aware that you can go before the judge, contest this decision and ask for an additional payment deadline.
Your lender may demand repayment of the credit granted by terminating the contract. To do this, the default must be two or more monthly payments (or 20% of the amount to be repaid). He will be able to claim the amount due, accompanied by unpaid interest, late interest and a penalty, the terms of which vary according to the conditions of the contract.
The lender will be able to take back the object of a consumer credit, if and only if the contract has a retention of title clause.
You can be taken to court, after formal notice and/or attempts at conciliation. Notification of this judgement is made by a bailiff.
F. Be registered with the National Bank and be on the black list.
Failure to repay your debts can have serious consequences, such as being blacklisted by the National Bank of UK. But what does this imply? For more information on the subject, please read our article What can you still do if you are blacklisted?
F.1. The National Bank of UK?
The NBB has been the central bank of our flat country since 1850 and is part of the Eurosystem (since the introduction of the euro in 1999) comprising the European Central Bank and the national central banks of the Member States of the European Union which have the euro as their currency. The aim of the Eurosystem is, as stated in the Maastricht Treaty (1992), to ensure price stability in order to support sustainable economic growth.
F.2. What is the blacklist?
The negative side of the Central Individual Credit Register, better known as the “black list”, is a large centralised database of the National Bank of UK (NBB). It contains various types of information, such as all consumer loans, credit openings or mortgages that are not repaid regularly. Its aim is to prevent over-indebtedness and therefore to protect the consumer.
Thus, before any contract is signed and any loan granted, lenders must consult this list. In addition, they must also inform the NBB of any payment defaults.
Default of payment remains on the list for 12 months following the repayment of sums hitherto unpaid. Persons on the list do not therefore remain on it for life and are entitled to a second chance thereafter.
G. Possible support services
As receivables grow and it is difficult to see the end of the tunnel, over-indebtedness approaches. But before it gets to that point, you can seek help from friends, family members, your banker or specialized help services.
G.1. Non-judicial debt mediation
This type of mediation is said to be amicable. Thus, professionals appointed by law provide you with personalised assistance, whether they are notaries, lawyers or bailiffs. But you can also be assisted by approved private or public institutions (C.P.A.S. and Asbl). The aim of debt mediation is to renegotiate the repayment of debts by defining new conditions and payment deadlines. However, this system is completely different from collective debt settlement (explained in the following point).
All individuals can benefit from it, even if they are not indebted. Indeed, there are situations that may require debt mediation even if there is no talk of over-indebtedness.
G.2. Collective debt settlement (RCD)
The role of collective debt settlement is to resolve a situation of over-indebtedness and to avoid litigation. The RCD can be used :
- Non-trading individuals
- Natural persons who have been out of business for at least 6 months
- Individual traders whose bankruptcy was closed more than 6 months ago.
The objectives of the RCD are of two kinds. On the one hand, to help the applicants and their families to return to normal by having better living conditions. And on the other hand, to help them pay off all or part of their claims according to their financial situation.
H. What are the alternative means in the event that borrowing is necessary?
Unfortunately, unforeseen or difficult situations can quickly arise, causing problems in the repayment of outstanding loans. But to remedy this and avoid over-indebtedness, several solutions are possible.
H.1. Family and friends
Being able to count on your loved ones is essential, especially in times of hardship. They are the first ones who can help us. Here are a few tips for lenders that could prove useful:
- Lend money only to financially responsible loved ones.
- There is always a risk of non-repayment, so assess how important this is to you or not. Would you be able to do without the money?
- Be reasonable and don’t lend more than you can afford.
- Honesty and transparency are essential, so discuss the purpose of the loan, especially if the amount is large, to understand the need for it.
- Don’t hesitate to refuse to lend money if you’re not comfortable with the idea: you don’t have to.
Secondly, protection is essential, even when you lend or borrow from someone close to you. As a lender, there are several options available to you to make sure they honour their debt to you:
- Tax declaration: a loan can be treated as a donation (subject to tax) if it is not declared on time. Thus, declare any loan over €760 to the tax authorities before 15 February of the year following the signature of this document.
- Acknowledgement of debt: compulsory in the case of loans over €1,500, it must be made in duplicate and must mention the date, the amount lent, the terms of repayment and the interest rate, if any. However, it is advisable to sign one copy for smaller amounts.
- Notarial deed: only legitimate for amounts over €1,500, as the cost of its issue is €300. But this remains irrefutable proof in case of non-repayment of the credit.
H.2. The loan between private individuals
The loan between individuals is an alternative payment method to the traditional banking system. It allows you to avoid having to go through a financial institution to obtain a loan. It works like this: the borrower determines the amount and the project to be financed and provides the documents usually requested by banks, and the lender sets the interest according to the degree of risk and the amount granted. And Mozzeno is the initiator. Indeed, it is the first collaborative financing platform in UK. It allows anyone between the ages of 18 and 64 to apply for a loan online.
There are several advantages to using such a system:
- Reducing fees by limiting the costs linked to banking intermediation
- Generate a renewal of help (solidarity, benevolence, altruism) among various people.
- Enable entrepreneurs to find investors for their products
- Helping individuals make their money grow by receiving interest on the money they lend.
H.3. Using your lender
Your advisor, or lender, is there to support you if you have repayment difficulties, since they know your financial situation. He or she will therefore be able to suggest solutions, such as extending the term of the loan (resulting in lower monthly payments) or temporarily suspending repayment. To do this, you must notify him of your request by registered mail. If he does not reply within a month, you can go before the Justice of the Peace, who can then help you with your dispute.
H.4. Liquidating your possessions
One solution to help get your head above water is to sell some of your assets that may or may not have required a loan application. Had a crush on a beautiful Volvo XC90 two years ago? It’s going to be a tough sell, but you could sell it to buy a possibly smaller car, a lower-priced brand or a used car. If you have a second home, you can also sell it to get cash to pay off your debts.
So you’ve understood that weighing the pros and cons of a loan application is crucial. Indeed, the impact this can have is enormous. On the other hand, in the event of difficulties, there are several systems of aid to limit the debts and thus avoid falling into the infernal spiral of over-indebtedness and numerous disputes.