This post, regarding consumer bankruptcy in Europe, was initially intended to be just one, but its length made it better to divide it in two parts. I will deal here with some European countries and leave the second part to explain Spanish present situation. It is impossible to go in depth on this subject in a blog post and I will focus, like in the previous posts, on the main lines. I should be clear that I will not deal with the need of a shorter proceeding. In fact, in my opinion, that is not a consumer issue because it is the same for small debtors, whether consumer or small businesses or professionals. The complexity of the proceeding is not tied to the personal characteristics of the debtor, but to the amount of debts and creditors, something sometimes forgotten, even if the need of a simpler proceeding is much clearer for individuals. As is well known for the readers of Credit Slips, when we talk about consumer bankruptcy we are thinking mainly about fresh start or similar relief mechanisms. That is what this post is going to be about. Part of its content follows the Report on legal solutions to debt problem in credit societies, by Johanna Niemi-Kiesiläinen and Ann-Sofie Henrikson, already mentioned here by Jason Kilborn.

Consumer bankruptcy and fresh start is recent in Europe. It is usually said that it expanded in the continent as late as in the nineties of the past century (the first country to introduce a law for this purpose was Denmark in 1984). The reason was the economic crisis of the middle nineties, which showed the problems faced by middle class consumers in a more indebted society. From this starting point, most of the countries in the EU have already passed a law that faces in one form or another the problem of consumer insolvency. After the esdebitazione was introduced in the latest reform of insolvency law in Italy (arts. 142 ff. Legge Fallimentare), the most prominent country without a fresh start Spain (at least, in the traditional EU countries, I do not know the situation for the newest EU members, sorry for that). I will use the example of the countries that we usually use in Spain for comparative purposes, i.e., Germany, France and Italy, (we use the UK and the USA too, but the situation in those two countries is better known for the readers of this post than for its writer, so he won’t take the risk of writing about them).

Let’s start with France, as it is somehow distinctive. The reason is that in French law the focus has been put on the consumer overindebtedness rather than on the fact of consumer insolvency. So, in the Code de la Consummation (remember my first post?) there is a specific proceeding regarding this issue (arts. L330-1 to L333-8), while none could be found in the insolvency law, now included into the Commercial Code (Code de Commerce, Book VI, arts. L610-1 ff.). The proceeding develops in front of an administrative body (the Commission de Surendettement des particuliers) that serves as a place to reach an agreement, having the right, if that agreement is not reached, to propose several measures that could be imposed to the creditors by an specific court.

Germany has a more classical position, including in its Insolvency Law the provisions offering the discharge to the consumer (Restschuldbefreiung, §§286 to 303 Insolvenzordnung, InsO), an example followed almost literally in Portugal (Exoneraçâo do passivo restante, arts. 235 to 248 of the Codigo da Insolvência e da Recuperaçâo de Empresas). In both countries, the discharge is limited to honest debtors and requires the transfer of the disposable income for the next years (6 or 5) to a trustee. Italy had no discharge provisions in its insolvency law, in keeping with the traditional option of limiting the insolvency procedure to businesses, but the Italian discharge was introduced in the reform of 2005 (Esdebitazione, arts. 142 to 144 Legge Fallimentare). The conditions here are less stringent–the main ones are the honesty of the debtor and the evaluation of how collaborative has been during the insolvency proceeding–but, as the proceeding itself is closed to consumers, that relief is offered only for individuals with business or professional activities. There is no transfer of future incomes, but the discharge requires that at least part of the debts are paid in the proceeding. In these three countries, once the discharge is given, the debtor is banned to use it again in 10 years. Speaking in general terms, these examples show that rather than a full discharge and a fresh start, European national laws impose conditions to access to that relief, to avoid the abuse. That is why the report of Johanna Niemi-Kiesiläinen and Ann-Sofie Henrikson used the term earned "fresh start."

To be continued…