§ 4-8. Distribution between creditors (fordringshaverne) in debt settlement (gjeldsordning)

Gjeldsordningsloven·LOV-1992-07-17-99

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In brief

The text of the law (unofficial translation)

§ 4-8. Distribution between the creditors

The debt settlement shall include all the debtor's obligations that are not payment for a future counter-performance that the debtor is entitled to receive under §§ 4-3 to 4-5 and tax and duty claims that are kept outside the debt settlement pursuant to letter c below, as well as obligations as mentioned in the third paragraph. The funds to be distributed between the creditors are distributed proportionally according to the size of the debt, with the following exceptions:
  1. Claims (fordringer) secured by security in the home
    If the debtor is to keep an owned home, claims secured by security in the home within the home's market value (omsetningsverdi) plus 10 percent shall be given the agreed interest during the debt settlement. No instalments shall be paid during the debt settlement period (gjeldsordningsperioden), but the principal remains. Claims secured by statutory security in the home pursuant to the Mortgages and Pledges Act (panteloven) § 6-1 shall nevertheless be given full coverage.
    Other claims secured by security in the home are given coverage on an equal footing with other unsecured claims. The claim lapses when the debtor has fulfilled the obligations under the debt settlement.
  2. Other secured claims
    Other claims that are secured by security within the value of the secured asset shall be serviced with agreed interest and instalments.
    Claims with security that fall outside the market value of the security shall be treated on an equal footing with unsecured claims.
  3. Tax and duty claims
    Tax and duty claims that have arisen after the time of opening are not included in the debt settlement. This also applies to tax and duty claims that are determined by decision after the time of opening.
    If the debtor has had too low advance tax during the debt settlement period, which has resulted in a higher dividend (dividende) than if the advance tax had been correct, the tax debt thereby incurred shall be covered in full by reducing the dividend to the creditors (kreditorene) correspondingly until the tax claim plus interest and costs has been paid.
  4. Maintenance obligation (bidragsforpliktelse)
    Maintenance obligations imposed on the debtor under marriage legislation or under the Children Act (barneloven), except debt to the public sector, shall be given full coverage. Debt to persons entitled to maintenance that arose more than five years before the application (søknaden) for debt settlement is submitted may be reduced if this will not be particularly unreasonable towards the person entitled to maintenance.
    In the assessment under the first paragraph, second sentence, particular weight shall be given to the prospects of the debt being repaid. Weight shall also be given to the reason why the debt arose, and to the financial position of the maintenance recipient.
  5. Smaller claims
    Smaller claims may be paid in full when consideration for a reasonable implementation of the debt settlement so indicates.
  6. Interest and costs
    Interest and costs may be given poorer coverage than other claims when this will not be particularly unreasonable towards individual creditors.
  7. The nature of the claim
    A claim may be given better coverage than other claims if strong reasons so indicate.
  8. Claims based on a criminal act
    Fines imposed by judgment (dom) shall be covered in full, or in accordance with any pardon decision. Fines imposed by penalty notice (forelegg) less than three years before the application for debt negotiation (gjeldsforhandling) is submitted shall as a general rule be given full coverage.
    Claims for compensation (erstatning) or redress for damage caused by a criminal act shall be given full coverage. An exception may be made if the claim was determined by judgment or penalty notice more than three years before the application for debt negotiation is submitted, or if special rehabilitation considerations so indicate and consideration for the person holding the claim is not decisive. In assessing whether such an exceptional case exists, particular weight shall be given to the nature of the criminal act.
  9. Debt incurred after an obvious breach of the duty to refuse under the Financial Contracts Act (finansavtaleloven) § 5-4
    Debt originating from loans or credit that obviously should have been refused under the Financial Contracts Act § 5-4 may be given poorer coverage than other claims unless this will be particularly unreasonable towards individual creditors.
If it is not possible to meet the requirements in this section, and creditors who can demand full coverage do not voluntarily agree to a reduction of the claim, debt settlement cannot be obtained.
If the size of the claims that cannot be covered during the debt settlement period indicates that the debtor must be assumed to be able to gain control of their finances even if the claims are kept outside, debt settlement can nevertheless be obtained. In that case, claims that are to be kept outside shall be taken into account in the debtor's budget.
Source: Lovdata — Gjeldsordningsloven (the Debt Settlement Act) § 4-8

What does this mean?

The general rule is that the money is divided between the creditors in proportion to how much debt each of them is owed. The debt settlement in principle covers everything the debtor owes, with a few limitations. Among other things, payment for services that the debtor is to receive in the future and is entitled to under §§ 4-3 to 4-5 is kept outside.

If the debtor keeps the home, the secured claims that lie within the home's market value plus ten percent receive ongoing agreed interest, but no instalments during the period, so the principal remains. Secured debt beyond this is treated as ordinary debt, and it lapses when the debtor has fulfilled the settlement. Statutory security in real property, such as a municipality's security right for property tax and certain charges, shall nevertheless be covered in full, cf. the Mortgages and Pledges Act § 6-1. Maintenance payments imposed on the debtor shall as a general rule also be covered in full, but maintenance debt that is more than five years old may be reduced if this is not particularly unreasonable towards the recipient.

Other claims may receive better or poorer coverage. Compensation after a criminal act shall as a general rule be covered in full. Debt from loans that under the Financial Contracts Act § 5-4 obviously should have been refused may receive weaker coverage than other claims. That rule is based on the lender only being allowed to enter into a credit agreement with a consumer when it is likely that the customer has sufficient creditworthiness. Interest and costs may also be given poorer coverage than the claim itself.

The requirements in the section must be possible to meet. If they cannot be met, and creditors who are entitled to full coverage do not voluntarily accept a reduction, the debtor cannot obtain debt settlement. Even if some claims cannot be covered during the period, debt settlement can still be obtained if the debtor is expected to gain control of their finances. The claims kept outside are then included in the budget.

Disputed claims (omstridte krav) are dealt with in § 4-9 and claims under a personal guarantee (kausjon) in § 4-10. From other parts of the Act, § 5-2 on compulsory debt settlement (tvungen gjeldsordning) and § 7-2 on deletion of encumbrances (panteheftelser), among others, refer to this section.

Related sections
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