A. Briefly: what are debts?
A “debt burden” in this guide refers to the total amount that someone has borrowed, usually through a credit application(car loan, mortgage loan, decoration loan,…) or the use of a credit card, but has not yet repaid it. Sometimes you have no choice but to take out a loan. Properly informing you about the conditions and the consequences that a loan can have on your budget is certainly important if you want to maintain sound management of your personal and financial situation.
What is also important is to avoid a negative debt spiral or recourse to debt mediation by distinguishing between a healthy and less healthy debt burden. Both situations affect your private life. Distinguishing between these two debt costs is very important to avoid a negative debt spiral or an appeal to debt mediation. The two situations each have a different impact on your personal life, one of which can have a negative impact.
Definition: A ‘good’ debt is a debt obligation that is contracted for a specific purpose, for example for a professional or personal investment. The objective of the loan is usually about profit, savings or an increase in income. Litigation is not an issue here. For example, consider:
- the student loan, to finance a study;
- the renovation loan to increase the value of a good;
- the mortgage loan to become the owner of real estate or the rental of real estate with the aim of an additional source of income.
- a loan for starting a business.
Definition: a ‘bad’ debt is a non-profit debt obligation and may even result in permanent impoverishment if the available funds are no longer sufficient to pay off the debt. The applicable interest rate is certainly important here. Certainly when the borrower cannot meet the monthly repayment. In the case of non-reimbursement you can be registered with the NatBank. Or you will be eligible for debt mediation.
Examples of unhealthy debts are:
- A consumer credit that exceeds your current financial situation. For example: you take out a loan because you want to buy the latest iPhone, an Apple MacBook Pro, a designer bag or a Nikon D3S photo camera, while you don’t have the money for this.
- In the case of non-repayment, credit cards can quickly form a gap in your portfolio, credit purchases are usually seen as a lack of liquidity. If you cannot repay this money in time, the banks charge a higher interest rate. Your purchases will then be more expensive than expected.
- Personal loans are loans for specific purposes such as a renovation loan, mortgage loan or car loan that do not add any additional value.
Avoiding unnecessary expenses is crucial and certainly when you do not have the money, also to avoid unnecessary litigation. For example, if you are thinking about a new car but you really can’t afford it, a second-hand car can be a good alternative. In that case you can always compare the different types of second-hand car loans.
Tip: In order to properly manage your debt burden and avoid debt mediation, it is recommended to take out a loan over a shorter period and to pay your monthly repayments on time. By regularly putting something aside, you can save part of your money for unpredictable situations or expenses. By paying with cash or with your debit card you avoid having to use your credit card too much. That way you don’t have to pay high interest and you reduce the total cost of all your expenses.
Do you have household debts? Debts incurred to meet family needs (for example, the education of the children), these will have to be repaid jointly by the partners who incurred the debts. This applies to both actual and legal cohabiting couples and married couples.
B. Household debts
Taking out a first loan as a couple and signing jointly is very common. The responsibility for the debts depends on the chosen status of the partners, ie cohabiting, legally cohabiting or married.
Of course it is not a crime to treat your family to a cozy restaurant dinner with your credit card. Because small ‘debts’ like this do not endanger your family’s financial situation as long as they are repaid on time. If you are late in paying the payment time and time again, the interest costs will accumulate and a snowball effect will occur. Taking out a loan to pay off the credit is the start of a negative debt spiral where eventually debt mediation cannot help you. Ultimately this can lead to legal disputes or you will be registered with the NatBank.
Paying off debts: married couple
The way in which a married couple repays their loan depends on the chosen matrimonial property regime. This can be: community of property, separation of property or specific clauses agreed in the marriage contract. In any case, it is crucial to discuss this with your partner before taking out a loan, as this can have major consequences for your financial situation.
Legal system (separation of property with community of acquisitions)
Debts incurred before marriage are considered personal and do not belong to the couple. For example, think of a house that belongs to one of the spouses. Debts associated with a personal good are also personal debts (such as a loan for an apartment from one of the partners). In addition, there are also common debts such as:
- debts jointly incurred during the marriage;
interest on personal debts (follows the logic that income from personal property falls under ‘community of acquisitions’);
- debts incurred by one of the partners to meet family needs or to protect a common good;
- debts associated with a donation or inheritance tax for both partners.
System of separation of goods
As the name implies, income and debts (both before and after marriage) are both considered personal. This means that this must be reimbursed by the person who has taken out it. Some financial institutions require the agreement and signature of the spouse. In this case you fall back on the rules of the legal system.
System of community of goods
In this case, all property is placed under a common denominator both before and after the marriage. This therefore also applies to the debt burden. The partners should therefore jointly repay the debts.
Repayment of debts: Actually and legally cohabiting
The rules applicable to couples who actually or legally live together are the same as those for the system of separation of property (ii). Both partners are jointly responsible for paying back the debts incurred for the needs of the family (e.g., study of the children). Debts contracted for personal purposes remain at the expense of the person who entered into the contract. To find out more about what happens when a couple applies for a divorce, you can consult our article “The effects of a divorce on your current loan”.
C. The Central Individual Credit Register
Organized by the NatBank of Belgium (NBB), the Central Office for Credits to Private Individuals (CKP) aims, first of all, to combat excessive indebtedness and the need for private debt mediation. But the CKP also records all loans taken out by private individuals as data on defaults with regard to these loans. Before lenders are allowed to allocate a loan or change an existing one (both classic and flexible loans where you can go below zero), they are required to consult this register, especially if they believe that this could lead to excessive indebtedness and therefore legal processes.
The data is removed from the file of the CKP within eight days (legal obligation of the lender) once the loan has been repaid or if there is no longer any payment. If you are blacklisted, this means that you are registered with the NatBank.
D. Keep your debts under control
It is crucial that you avoid excessive indebtedness at all costs, in a society where planned aging and more expensive lifestyles are the trends. To avoid debt mediation, a hopeless financial situation, or to be registered with the NatBank.
By contacting your bank you can avoid excessive debt charges. Through debt mediation, a debt mediator can, for example, negotiate a rescheduling of your monthly installments if you can no longer keep your head above water. There are several ways to make your monthly payments lighter so that you will have just a little more financial room and you can prevent legal problems. A debt consolidation loan is also a possibility. The financial institution then pays off all your current debts and proposes a unique new loan that groups all previous debts into a new monthly repayment plan with 1 unique interest rate and 1 fixed installment.
E. The consequences of non-repayment of a loan
Repaying your monthly installments can sometimes be difficult and you may find yourself in this situation. At the end of June 2017, more than 500,000 Belgians went into default. This can have some consequences:
- You are listed on the blacklist of the Central Individual Credit Register or at the NatBank. For further information about the CKP, we refer you back to point C. After you have missed a payment 3 times, your name will be blacklisted for 10 years. Only when you have fully repaid your debts will your name be removed from the list 1 year after the repayment.
- Your lender can invoke your guarantees depending on the legal conditions.
- Mortgage: You can seize the relevant property for which you have a mortgage.
- Guarantor: the financial institution may require the guarantor to pay.
- Salary: as soon as you do not pay, the lender can use your salary. This must be clearly stated in the loan contract. This clause can possibly be challenged before a jury for deferred payment.
- Your lender may demand the repayment of the credit granted to terminate the contract. However, the payment arrears must be at least 2 months (or 20% of the debt). This concerns the withdrawal of the remaining capital amount, unpaid interest and a penalisation (maximum 10% of the remaining capital amount for the first bracket of € 7,500 and 5% for the higher bracket whose terms vary depending on the contract).
- In the case of a consumer credit, the lender can invoke the subject matter of the contract, if this is stated in the loan contract in the form of a retention of title clause.
- You can be summoned by the court for notice of default and / or if you have not attempted mediation. The summons is signed by the bailiff.
F. What if you are listed on the black list?
Failure to repay debts can have serious consequences, one of which is to be listed on the NatBank of Belgium ‘s blacklist. But what exactly does this mean?
If you want to find additional information about this subject, do not hesitate to read our article ” What to do and what not to do as a default on the black list “.
What is the task of the NatBank of Belgium?
The NatBank of Belgium has been the central bank of Belgium since 1850 and is part of the Eurosystem (since the introduction of the euro on 01/01/1999). This system covers both the European Central Bank and the national central banks of the EU Member States whose national currency is the euro. The objective of the Eurosystem is to guarantee price stability and thus ensure sustainable economic growth (Maastricht Treaty, 1992).
What is the blacklist?
The negative part of the Central Office for Credits to Individuals, also known as “black list”, is a large centralized database of the NatBank of Belgium. The list contains all kinds of information about consumer loans, credit openings for private purposes and mortgage loans that are not regularly repaid. The purpose of this measure is to prevent excessive indebtedness and to protect the consumer.
Before financial organizations grant a credit, they must consult this database. In addition, they must notify the NBB of all arrears.
An overdue contract will be blacklisted for 12 months after the moment of reimbursement. The person identified does not therefore remain on the list for life and ultimately receives a second chance to apply for a new credit.
G. Possible resources
When your debts accumulate and it is difficult to see light at the end of the tunnel, an excessive debt burden is approaching. Before you arrive here, it is certainly possible to ask for help, whether it’s with friends or family, your banker or other specialized help lines.
Extrajudicial debt settlement
Out-of- court debt mediation means trying to find a settlement with the creditors and is therefore also referred to as an amicable debt settlement. This personal assistance is offered by professionals designated by law (such as lawyers, bailiffs or notaries) or by institutions, both private and public (such as the OCMW and non-profit organizations). With the aim of negotiating your debts and obtaining new conditions and / or payment deferment. This extrajudicial debt settlement may not be confused with the collective debt settlement system (see below).
Every person is entitled to this help, whether they are over indebted or not. There are situations that can cause debt mediation without you having to be deeply in debt.
Collective debt settlement
The purpose of the collective debt settlement is to help people with structural debt problems. Those who may be eligible for this may be persons without commercial purposes, persons who have ceased trading for at least 6 months and persons who have been declared bankrupt for at least 6 months.
Debt settlement mainly has 2 objectives:
- The first goal is to help people and their families return to a portable and human life.
- The second includes enabling them to pay off their debts, in whole or in part, depending on their financial situation.
H. What are alternative options for obtaining a loan?
An unexpected release or a plightful situation will pop up sooner or later in your daily life anyway. This can cause problems for the repayment of your current loans. To prevent you from getting too much into debt or dealing with other disputes, there are some possible solutions.
1. Friends and family
In difficult times it is always important that you can turn to your family or loved ones. They are closest to you and may be able to help you before dealing with debt mediation or other problems.
View our tips below if you are thinking about lending money to a close relative or friend:
- Make sure you only lend money to people you know are financially stable.
- Remember that there is a risk that you will not be reimbursed. Therefore, consider a maximum amount that you want to lend.
- Make sure that the money you lend has a limit and that you lend no more than you can miss.
- Discuss matters concerning the loan with the person in question: the purpose of the loan, why does he / she not have the money? Honesty and transparency are a must!
- If you do not feel comfortable lending money to someone in your circle of friends or family, do not hesitate to say no, because you have no responsibility whatsoever.
It is always advisable to cover yourself if you borrow from or provide a loan to someone close to you. To increase the chance that you will be reimbursed as a borrower, here are some tips:
- Tax return: a loan can be equated with a donation (tax-free) if it is not declared on time. It is therefore better to report a credit above € 760 to the tax authorities before 15 February of the year following the signing of the document.
- Recognition of debts: compulsory for a credit of more than € 1,500. The document must be drawn up in 2 copies and must contain the date, amount borrowed, terms of repayment as well as the interest rate (if applicable). However, it is advisable to sign one for lower amounts.
- Notarial deed: costs around € 300 and is only lawful for amounts above € 1,500; that can sometimes lead to difficult situations.
2. Loan between individuals
The loan between private individuals is an alternative payment method in comparison with the traditional banking system. You can get a loan from a private individual without having to go to a financial institution. The borrower explains the amount and the project to be financed and provides various documents that are normally requested by the bank. The lender can determine interest rates according to the sum awarded and the associated risk.
This system has several advantages. First, you reduce the costs that you normally have to pay for the bank’s intermediary services.
Secondly, this process creates a certain bond (solidarity, benevolence, altruism) between different people and makes it possible for entrepreneurs to find their product. Thirdly, it is possible for financiers to raise money through a private loan through interest received on the sum (s) borrowed. The loan is broken down into notes that correspond to a specific risk weight based on the repayment capacity and financial situation of the borrower.
Mozzeno is the platform that is the pioneer in this field. It is the first platform for collaborative financing in Belgium. People between 18 and 64 can submit a credit application online here. The borrowers or investors can choose in which underlying loans they want to invest their money. It is therefore impossible to finance a project for 100% as this involves too high risks.
3. Call on your financial institution
If you experience difficulties paying off your debts, it will not hurt to discuss this with your financial adviser or lender. Your bank knows your financial situation and is most likely able to propose some solutions to you; such as an extension of the duration of the loan (for smaller monthly repayments), a temporary suspension of your repayment process or other debt mediation measures. For this you must send your bank a registered letter. If no positive response is given to your application within one month, you can go to the justice of the peace who can help you with the conflict.
4. Liquidate your assets
A solution that can help you stay afloat is to sell certain assets. Did you go for the Volvo XC90 2 years ago? It can be a bitter pill, but you can sell the car and purchase a smaller, cheaper model, or opt for a second-hand car. The sale of your second home or holiday home also provides you with additional financial resources to help you pay off your debts.
In short, weighing up the pros and cons of a loan application is crucial. The impact that this can have on your daily life is greater than you might think at first glance. Know that there are always tools during difficult times that can help you avoid debt and lawsuits.