Growing Number of Over-Indebtedness Households

The start of the economic crisis in the year 2008 has lead to an increase in the number of households that are over-indebted on a constant basis.

While over-indebtedness is seldom brought about by a single factor, most of the debate on over-indebtedness seems to be concentrated on mortgage debt, since it is typically the largest financial commitment in terms of a consumer’s finances.

It is important to note that almost every member state in the EU has legislation offering protection for consumers in cases of possible foreclosure, together with voluntary lender forbearance schemes.

However, consumer groups are claiming that these are special times and special actions must be taken in order to solve the increasing over-indebtedness.

In addition, legislators at national and EU member state level seems to be dedicated to solve this problem. Their main objective is to attempt to avoid foreclosure. However, the solutions presently being considered at EU level in particular, might lead to several legal, economic and ethical issues.

One of these solutions is commissioned by DG Internal Market and Services’ financial services user group. London Economics is the consultant in charge and must conduct a mapping exercise of the legal environment in 17 member states to determine all formal debt reductions solutions, which permit consumers to go back to a financially sustainable life by removing some or all of their debts.

The research will concentrate on the following as possible alternatives to foreclosure like the availability and use of personal bankruptcy and datio in solutum of mortgages as legal solutions to over-indebtedness. Datio in solutum is, in other words, payment in kind and basically like the system of non-recourse mortgage loans, in which the return of the property is enough to pay back the outstanding debt.

However, advocates of non-recourse mortgage loans claim that the cause of the economic crisis in 2008 was widespread irresponsible lending and not non-recourse loans.

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