Over-indebtedness, bankruptcy, insolvency – the Germans and the taboo subject of debt .



 While the German economy is booming, exports are recording record profits, debt has recently fallen by 2.9 percent, and unemployment is at a low level, the financial situation is worsening for more and more private households. Especially in the west, the number of over-indebted households continues to rise.

Over-indebtedness vs. insolvency

Over-indebtedness vs. insolvency

Over-indebtedness is not the same as bankruptcy. First of all, over-indebtedness signifies that spending over a long period of time is higher than revenue and that assets no longer cover the liabilities that arise. In summary, this can be reduced to the following equation:

Over-indebtedness = debts> assets

“Over-indebtedness is a state of excessive debt, which the debtor can no longer dispose of existing income or assets according to human discretion.” 

Bankruptcy, on the other hand, constitutes the judicial settlement of debts that can be declared in the event of insolvency. In the case of a private or consumer bankruptcy, the debtor’s debt is ultimately the debt of the person concerned.

The Debt Atlas 2017

The Debt Atlas 2017

The credit agency credit reform has calculated that currently more than 6.9 million citizens over 18 years are permanently in debt. That is 65,000 more people than in the previous year.

With an increase of 0.9 percent, the rate is currently at 10.4 percent, rising for the fourth time in a row. The total volume of debt amounts to about 209 billion USD – with regionally large differences.

Senior citizens are increasingly affected

The trend is mainly affecting the older generation. 194,000 people are over-indebted among people over the age of 70, around 20,000 more than in 2016 – an increase of 12 percent. In total, four out of five new over-indebted individuals are over 50 years old.

However, the overall over-indebtedness rate for seniors is still far below the values ​​of other age groups at 1.5 percent. Above all, the young generation is getting more and more into the debt trap. Here 14.06 percent are considered over-indebted.

However, the trend of young people is in favor of a more sound management of the money, the over-indebtedness rate was slightly lower than in the previous year in the youngest age group.

Women more often than men

In the total number of over-indebted individuals, men are still leading the statistics. However, more women are also affected – 60 percent of the additional persons are women. It is especially common for single mothers.

All in all, 7.61 percent of women are over-indebted in 2017, and 12.59 percent of men.

Less problem for high and low earners

Particularly affected is the middle class. In contrast, both the high earners and the low paid declined slightly compared to the previous year.

A study by the University  it  came to the conclusion that over-indebtedness, especially in the middle class, leads to social problems. Overindebtedness is regarded as a stigma by the average earners, and those affected put themselves in social isolation.

Reasons for over-indebtedness

Reasons for over-indebtedness

In the past, unemployment was always the main cause of over-indebtedness. This is still the case, but in times of economic activity and a growing shortage of skilled workers, the unemployment rate is at a low.

Accordingly, illness, addiction problems and accidents play an increasingly important role. In addition, uneconomical housekeeping is often a reason for impending insolvency.

Most consumers are blamed for banks, mail-order companies, insurance companies, public authorities, landlords, energy suppliers and telephone companies. This has resulted in an evaluation of data of the district courts.

Also, losses in value of one’s own assets, such as massive impairments of securities, decreases in income or loss of value in real estate can contribute to over-indebtedness.

Anyone who is already sitting on a high debt mountain, also feels the interest on debt, which represent an ever greater burden by compound interest effect.

An option to get out of one’s own debt is often only the transition to private bankruptcy.

Personal bankruptcy

personal bankruptcy

New regulations since 2014

In 2014, the legislature changed the rules on personal bankruptcy to allow over-indebted consumers to return to debt more quickly.

However, the result so far is sobering: only eight percent of people who have filed for a private bankruptcy succeeded in prematurely restarting. Of 49,642 people, that’s just 4,111 consumers who achieved a residual debt exemption.

The prerequisite for being considered debt-free after only three years and not six years is the repayment of 35% of the total debt and the costs of the proceedings.

Changes at a glance

  • Possibility of shortening the insolvency proceedings to three or five years (instead of the normal six-year term),
  • Possibility of early debt relief through an insolvency plan,
  • better tenant protection – holders of cooperative shares are now protected against termination,
  • Introduction of additional exceptions to the grant of residual debt exemption,
  • Possibility of subsequent refusal of residual debt exemption,
  • Extending the refusal due to inappropriate liabilities or wasting assets to three years,
  • Strengthening the rights of unsecured creditors,
  • Refusal of residual debt exemption by written request.

Prospects of success are higher for younger people

Above all young people benefit from the new regulation. Among the under-25s, relatively small amounts have accumulated. With a debt level of 10,000 USD, a monthly installment is enough to achieve the quota of 35 percent within three years and thus the residual debt exemption.

In the generation over 60, the average debt level, however, is fast at 40,000 USD and more. Wiping out 35 percent within just three years is a utopian endeavor.

Even the self-employed are often candidates for a private bankruptcy. Payables of several thousand USD quickly accumulate. Especially with your own company, however, it takes a long time before you can admit your own failure. The mountains of debt are often considerable.

Conditions for private bankruptcy

In principle, any private individual who is insolvent may apply for a personal bankruptcy unless he or she is self-employed. Exceptions are only possible if self-employment is in the past, no employees are involved and there are less than 20 creditors in total.

Another condition is that the out-of-court debt settlement has failed. The debtor must first try to come to an agreement with the creditors before proceeding.

If this agreement fails because, for example, the debtor can not comply with the agreement or creditors enforce foreclosure, a lawyer or a suitable body can confirm this failure. From then on, the debtor can file a petition to open the personal insolvency proceedings within six months.

Expiry of personal bankruptcy

The standard duration of the insolvency proceedings is six years. If the debtor behaved in accordance with the rules in this period of the conduct of the good conduct, ie, disclosed his income and regularly reported changes in living and working conditions, he is considered debt-free.

The procedure can be shortened if the debtor settles 35 percent of the debt and the costs of the proceedings within a period of three years. If the debtor can at least pay the costs of the proceedings, the period expires after five years. Completely independent of a repayment, the period ends after six years.