Resolving personal over-indebtedness
Last updated more than 5 years ago
The law on over-indebtedness provides for a collective debt settlement procedure designed to redress the financial situation of over-indebted individuals by allowing them to repay their debts, while at the same time ensuring that they and the members of their household can lead a life that preserves their human dignity.
For natural persons, over-indebtedness is a situation in which it is clearly impossible for a debtor domiciled in Luxembourg to cope with their private debts, whether existing or future, and to fulfil their commitment to guarantee, or jointly and severally settle, the debt of an individual entrepreneur or company, to the extent that they were not a legal or de facto manager of the latter.
Who is concerned
This primarily applies to debtors domiciled in Luxembourg, for whom it is clearly impossible to cope with all of their private debts, whether already due or falling due.
Only natural persons are eligible for this procedure.
An individual that has the status of a merchant (i.e. running a business) may be eligible for the collective debt settlement procedure up to the amount of their privately incurred debts, provided it has been established that they are in a situation of over-indebtedness, and that they have stopped their business activities for at least 6 months or, in the case of bankruptcy, if the winding up of their business operations has been pronounced.
Persons excluded from the collective debt settlement procedure
The following are excluded from the collective debt settlement procedure:
- legal persons in the broad sense of the term (e.g. companies, associations, etc.);
- debtors that have merchant status (i.e. running a business) as defined in Article 1 of the Commercial Code ("Merchants are persons that operate a commercial activity as their usual profession").
Persons stripped of the right to benefit from the provisions of the law on over-indebtedness
The following persons are precluded:
- any person who has made arrangements for own their insolvency;
- any person who has diverted or concealed, or attempted to divert or conceal all or part of their assets;
- any person who, without the consent of their creditors, or the Mediation Committee for Over-indebtedness (Commission de médiation en matière de surendettement) or a judge, has aggravated their debt by taking out new loans, or has taken action to dispose of their assets during the collective debt settlement procedure.
How to proceed
A 3-phase procedure
The collective debt settlement procedure comprises 3 phases, namely:
- the conventional settlement phase, the proceedings of which are held before the Mediation Committee for Over-indebtedness;
- the reorganisation phase, the proceedings of which are held before the court magistrate (juge de paix) in the domicile of the over-indebted individual;
- the personal recovery or "civil bankruptcy" phase, the proceedings of which are held before the court magistrate assigned to the over-indebted person's case.
It should also be noted that the personal recovery phase is subsidiary to the other 2 phases of the collective debt settlement procedure. As such, a debtor cannot directly commence the personal recovery phase without having concluded the conventional debt settlement phase and the reorganisation phase.
During the collective debt settlement procedure the debtor is bound by a 'good conduct' obligation, which entails:
- cooperating with the authorities and bodies participating in the procedure, by accepting to voluntarily provide all information regarding their assets, income, debts and any changes that may occur in their situation;
- engaging, to the extent possible, in a paid activity that corresponds to their abilities;
- not worsening their insolvency, and acting faithfully in an effort to decrease their debts;
- not giving preference to any one creditor, with the exception of those currently due maintenance payments, landlords for currently due rent payments in connection with a home that corresponds to the debtor's basic needs, providers of products and services that are essential for the preservation of their human dignity, and creditors in connection with enforcement measures against the debtor for payment of damages awarded for physical injury as a result of intentional acts of violence;
- complying with the commitments made in connection with the procedure.
A debtor that has violated the 'good conduct' obligation risks having the decision granting them the right to the conventional debt settlement procedure revoked.
Over-indebtedness Information and Consulting Office (Service d'information et de conseil en matière de surendettement - SICS)
Individuals facing over-indebtedness may obtain information on what steps to take in the event of over-indebtedness at one of the following Over-indebtedness Information and Consulting Offices:
- Inter-Actions a.s.b.l.: in Esch-sur-Alzette (1, rue Helen Buchholtz, L-4048 Esch-sur-Alzette - Tel.: 54 77 24/25/26 ; Fax: 54 77 26);
- Health and Social Welfare League(Ligue Médico-Sociale)
- Luxembourg City: Health and Social Welfare Centre, 2, rue George C. Marshall, L-2181 Luxembourg (Tel.: 48 83 33 300; Fax: 48 83 37);
- Ettelbruck: Health and Social Welfare Centre, 2A, avenue Lucien Salentiny, L-9080 Ettelbruck (Tel.: 48 83 33 300; Fax: 48 83 37);
- Clervaux: Health and Social Welfare Centre, 6, rue Brooch, L-9709 Clervaux (Tel.: 48 83 33 300; Fax: 48 83 37);
Concerned individuals are advised to contact one of the SICS offices before applying for admission for the conventional debt settlement procedure before the Mediation Commission.
The conventional settlement phase
Applications for admission for the conventional debt settlement procedure should be sent to the president of the Mediation Commission of the Ministry of Family, Integration and the Greater Region (Ministère de la Famille, de l'Intégration et à la Grande-Région):
Mediation Commission for Over-indebtedness
The following supporting documents must be enclosed with the application:
- a copy of the applicant's identity document;
- an estimate of the applicant's income, expenses and debts in connection with their financial position;
- if the applicant is a merchant:
- a certificate establishing their removal from the trade and companies register at least 6 months prior to the application;
- a final judgement concluding the business bankruptcy proceedings.
After the application has been accepted, and for the purposes of its examination by the SIC, the applicant will subsequently be asked to provide additional documents:
- a recent certificate of registration issued by the Joint Social Security Centre (Centre commun de la sécurité sociale);
- a detailed statement of their income, debts and expenses, with supporting documents;
- a certificate of income and wealth;
- a statement of assignments and attachments of earnings;
- where applicable, a certificate of pension;
- where applicable, a certificate of real estate.
The SICS may also ask to be sent any other document they may deem necessary for the examination of the application.
If the SICS finds that documents are missing from the applicant's file, they will inform the applicant accordingly and set a deadline for the submission of the missing documents. If the SICS office has not received the missing documents by the set deadline, the Mediation Commission may deny the application.
Decision to accept the application
Acceptance for the conventional debt settlement procedure results in the suspension of:
- enforcement measures (except those in connection with current maintenance debts, damages awarded for injuries caused by intentionally violent acts, and the forced expulsion of a person ordered to vacate the premises they occupy) and assignments of wages that were contractually agreed to;
- the accrual of interest.
Acceptance for the conventional debt settlement procedure also has the effect of triggering the start of the collective debt settlement procedure, which makes any debts incurred that have not yet fallen due payable.
The applicant is informed of the Commission's decision by registered letter. The Commission also informs the SICS, the creditors, guarantors, any co-debtors and all known recipients of third-party debt orders.
The effects of the acceptance decision enter into force on the first day following the date of publication of the notice of debt settlement in the register of collective debt settlement notices. The effects of the acceptance decision are maintained until the judgement is handed down, in the event that an appeal is brought in connection with the procedure.
Filing debt claims
Creditors of the over-indebted individual must file their debt claims with the Over-indebtedness Information and Consulting Office within 1 month of the publication of the notice of collective debt settlement in the register.
Debt claims are to be filed in conformity with Articles 6 and 7 of the Grand-Ducal Regulation of 17 January 2014 enforcing the law of 8 January 2013 on over-indebtedness. A sample debt-claim form can be found here.
The Mediation Commission assesses the admissibility of the debt claims.
The conventional settlement plan
Once the application has been accepted, the Over-indebtedness Consulting and Information Office, in cooperation with the debtor and their creditors, prepares a draft conventional debt settlement plan.
Next, the Mediation Commission proposes a conventional debt settlement plan which could contain, in particular:
- measures to postpone or reschedule the debt payments;
- assistance with social, educational or financial management matters;
- public or private financial aid;
- full or partial cancellation of debts;
- a reduction in interest rate.
The plan also set forth the terms for its execution and the reciprocal obligations of the parties concerned.
The recovery plan may not exceed 7 years, except for measures to repay loans taken out to purchase a piece of real estate that is the debtor's primary residence, and for which the plan would permit the debtor to avoid assignment.
If the plan is accepted—at least 60 % of the creditors representing 60 % of the total claims must give their consent—it is dated and signed by the debtor and by the president of the Commission. The Commission will have the accepted plan published by way of a notice in the register. If new elements arise, the plan may be modified.
If the recovery plan is not accepted within 6 months of the decision to accept the conventional procedure, the Commission will draw up a 'report of default' establishing the failure of the conventional settlement procedure, which report will be published in the directory. The suspensive effects of the acceptance decision will cease 2 months after the date of publication of the 'report of default'. It should be noted that if an over-indebted individual wishes to have the suspensive effect of the acceptance decision maintained despite the failure of the conventional debt settlement procedure, they must file an appeal with a view to initiating the reorganisation procedure (before the court magistrate of the debtor's domicile) within 2 months of the date of publication of the report of default.
The Commission may also, under certain conditions, recommend a moratorium for a maximum duration of 1 year. This moratorium, which will result in the suspension of certain claims, must be accepted by the creditors (60 % of the creditors representing 60 % of the total claims must give their consent).
If the conventional procedure fails, the debtor may bring the matter before the court magistrate to request that their case be accepted for the reorganisation procedure. If they do not do so, they may not apply for the conventional debt settlement procedure until a period of 2 years has elapsed.
The reorganisation phase
Filing the request before the court magistrate (juge de paix)
If the conventional settlement phase has failed, the debtor may file, within 2 months of the publication of the report of default, a request for reorganisation before the court magistrate of their domicile, according to the terms of Article 36 of the law on over-indebtedness. A written request, duly accompanied by a copy of the report of default, submitted as a petition before the court magistrate, is filed with the office of the clerk of the court of the debtor's domicile, in as many copies as there are parties to the case. The application must specify the last name, first name, profession and domicile of the parties, and contain a summary of the grounds invoked in support of the application, specifying the purpose thereof.
The concerned parties, along with the Over-indebtedness Consulting and Information Office, are summoned before the court magistrate by way of registered letter. They may appear in person or be represented by a lawyer.
The reorganisation plan
After hearing the various parties, the court magistrate renders a judgement within 1 month, establishing a reorganisation plan, which may entail:
- a suspension of payment for all or part of the debts;
- a reduction in the interest rate;
- the suspension of the effect of a security interest, with no loss of preferential rights and without compromising the secured assets;
- the cancellation of ancillary sums in connection with the debt;
- under certain conditions, the exemption of the debtor's primary residence, etc.
In certain cases, the judge may also propose a plan for probationary purposes, for a maximum duration of 5 years.
The judge also sets the dates on which observance of the terms of the reorganisation plan will be checked.
The terms of the reorganisation plan may be modified if new information justifies doing so.
The personal recovery phase
Filing of the application before the court magistrate
Such a situation arises when it is clearly impossible to implement:
- the measures provided for under the conventional settlement plan; or
- the measures proposed by the Commission under the conventional settlement procedure; and
- the measures provided for in connection with the reorganisation proceedings.
The matter is referred to the court magistrate by way of a request filed with the clerk of the magistrate's court (tribunal de paix) in the domicile of the debtor.
A written request is submitted through an application to the clerk of the magistrate's court in as many copies as there are parties to the case. In addition to the facts on which the request is based, the request should specify the debtor's last name, first name, date of birth, profession, and domicile or residence, as well as the last name, first name, profession, trade/company name, and domicile or residence of the parties. The request should also contain a summary of the reasons in support of the application and specify the purpose thereof. It should be signed by the applicant or their legal representative.
The concerned parties, as well as the Over-indebtedness Consulting and Information Office, will be summoned before the court magistrate by registered letter within 15 days of the filing of the application. They may appear in person or be represented by a lawyer.
After hearing the parties, the judge freely determines whether or not the debtor's situation is effectively 'irremediably compromised', and then renders a ruling as to the initiation or not of the personal recovery procedure.
The judge may also decide to make access to the personal recovery procedure contingent upon the execution of a probationary reorganisation plan for a maximum of 5 years.
When deemed necessary, the judge may order a social investigation and monitoring of the debtor by the social services.
Liquidation of the debtor's personal assets
The judge will have a report on the debtor's economic and social situation drawn up, the claims checked and the debtor's assets and liabilities evaluated. After having ruled in favour of the personal recovery procedure and ascertained the existence of the assets to be liquidated, the judge will proceed with the judicial liquidation of the debtor's assets.
The court magistrate rules on any claims that may be contested, and pronounces the liquidation of the debtor's personal assets. Only the movable property needed for the debtor's everyday life and the private property required for their professional activities are excluded. Under the personal recovery procedure, the debtor's assets are liquidated in accordance with the objective of the law, in other words, to redress the debtor's financial situation, while at the same ensuring that they and the members of their household can continue to lead a life that preserves their human dignity.
Throughout the liquidation process, the debtor's rights and actions over their assets are exercised by a liquidator who is appointed by the judge.
The liquidator has 6 months to sell the debtor's assets amicably, or to organise a forced sale.
Effects of the personal recovery procedure
- the funds collected from the liquidation of the debtor's assets are sufficient to pay off the creditors: the judge pronounces the conclusion of the procedure;
- the funds collected from the liquidation of the debtor's assets are insufficient to pay off the creditors: the judge pronounces the conclusion of the procedure due to insufficient assets;
- the debtor owns nothing other than the movable property required for their everyday life and the private property required for their professional activity: the judge pronounces the conclusion of the procedure due to insufficient assets;
- the debtor's assets consists only of property that has no market value or for which the sales expenses would be clearly disproportionate with regard to their market value: the judge pronounces the conclusion of the procedure due to insufficient assets.
Concluding the procedure due to insufficient assets has the effect of cancelling all of the debtor's private debts.
The following debts, however, are not covered by the cancellation:
- debts paid by a guarantor or co-obligee on behalf of the debtor;
- the debts referred to in Article 46 of the law, namely current maintenance debts and the pecuniary compensation for bodily injury awarded to victims of intentionally violent acts.
Nevertheless, the debts referred to in Article 46 of the law may be cancelled if the creditor concerned has agreed to the cancellation or rescheduling of the debts in question.
Registration of over-indebted individuals
Individuals who have been accepted for the conventional debt recovery procedure are registered in the over-indebtedness register for the entire term of the conventional settlement plans, reorganisation plans, plans established for probationary purposes and moratorium periods, but for no longer than 7 years.
Over-indebted individuals who have been accepted for the personal recovery procedure are registered in the register for a maximum of 7 years from the date of the ruling concluding the personal recovery procedure, which has the power of res judicata.
During the registration period, debtors whose private debts have already been cancelled may not re-submit an application for personal recovery.
The cancellation of the debts is final, unless the debtor experiences "better fortunes" within 7 years of the decision.
If the debtor has "better fortunes", the court magistrate, having received a request at the initiative of the debtor, creditor, co-obligee or guarantor of the over-indebted debtor, may forward the file to the Mediation Commission for the purposes of proposing a conventional settlement plan.
Forms / Online services
Demande d'admission à la procédure de règlement conventionnel devant la Commission de médiation en matière de surendettement
Antrag an den Schlichtungsausschuss (Commission de médiation en matière de surendettement) zwecks eines außergerichtlichen Einigungsversuches
Who to contact
Health and Social Welfare League2, rue George C. Marshall
Phone : 48 83 33 1
Clervaux health and social welfare centre6, rue Brooch
Fax : Over-indebtedness: (+352) 48 83 37 / Other services: (+352) 92 13 68
Diekirch health and social welfare centre5, rue des Fleurs
Phone : (+352) 80 92 15Fax : (+352) 80 46 44
Differdange health and social welfare centre23, Grand-rue
Phone : (+352) 58 56 58Fax : (+352) 58 64 20Mon.-Fri. from 8.00 to 12.00 and from 14.00 to 18.00
Dudelange health and social welfare centre56, rue du Parc
Phone : (+352) 51 62 62-1Fax : (+352) 52 03 40Mon.-Fri. from 8.00 to 12.00 and from 14.00 to 18.00
Echternach health and social welfare centre56, rue Duchscher
Phone : (+352) 72 03 02-1Fax : (+352) 72 99 15
Esch-sur-Alzette health and social welfare centre61, rue de la Gare
Phone : (+352) 54 46 46-1Fax : (+352) 54 44 31Mon.-Fri. from 8.00 to 12.00 and from 14.00 to 18.00
Ettelbruck health and social welfare centre2a, avenue Lucien Salentiny
Fax : Over-indebtedness: (+352) 48 83 37 / Other services: (+352) 81 77 88Mon.-Fri. from 8.00 to 12.00 and from 14.00 to 18.00
Grevenmacher health and social welfare centre20, route du Vin
Phone : (+352) 75 82 81-1Fax : (+352) 75 06 52Mon.-Fri. from 8.00 to 12.00 and from 14.00 to 18.00
Luxembourg health and social welfare centre2, rue George C. Marshall
Fax : Over-indebtedness: (+352) 48 83 37 / Other services: (+352) 48 83 37Mon.-Fri. from 8.00 to 12.00 and from 14.00 to 18.00
Mersch health and social welfare centre17, rue de la Gare
Phone : (+352) 32 58 20Fax : (+352) 32 58 19Mon.-Fri. from 8.00 to 12.00 and from 14.00 to 18.00
Redange-sur-Attert health and social welfare centre74, Grand-rue
Phone : (+352) 23 62 16 28Fax : (+352) 23 62 17 15
Wiltz health and social welfare centre4, avenue Nicolas Kreins
Phone : (+352) 95 83 09Fax : (+352) 95 76 55
Inter-Actions – SICS1, rue Helen Buchholtz
Grand-Duché de Luxembourg
Phone : +352 54 77 24-1Fax : +352 54 77 24-26
Inter-Actions – SICS13, route de Thionville
Grand-Duché de Luxembourg
Phone : +352 54 77 24-1Fax : +352 54 77 24-26
Ministry of Family Affairs, Integration and the Greater RegionMediation Committee for Over-indeptedness
Grand-Duché de Luxembourg
Postal address :