Illness, unemployment, divorce: there are many reasons why your own financial situation suddenly deteriorates. Those who can no longer pay their bills are in fact overindebted. A personal bankruptcy procedure can then help you out of a bind. But only a fraction of those affected go to consumer bankruptcy proceedings to get rid of debt.
Lawyer Kai Henning, spokesman for the working group on consumer insolvency at the German Lawyers’ Association, can only speculate as to why many people are reluctant to take the step. Many would try for a long time to get their financial problems under control on their own. “Being in debt is still associated with a lot of shame,” says Maria Loheide, board member at Diakonie Germany. For those affected, the decision to go into insolvency proceedings is therefore very emotional. “With this step, I have to admit that I have failed economically,” says Kai Henning. “But of course I don’t fail because of the bankruptcy.” She is a problem solver.
Those who seek help early can often avert proceedings
And how does such a personal bankruptcy procedure actually work? The first step is to go to a debt counseling center or a lawyer. Ines Moers from the Federal Working Group on Debt Counseling advises you to take this step as early as possible. “At the latest when you notice that you get a stomach ache when you open letters.” Important here: the debt counseling center should provide free support. Those affected can find the nearest counseling center at meine- faults.de. If you prefer to go to a lawyer, you should check beforehand what the costs will be. It would be advantageous if the legal costs were borne by legal aid.
Debtors and advisors work together to clarify which debts exist with which creditors. Counseling center or law firm must try to settle the debt situation out of court. A debt relief proposal is made to creditors, according to which they should generally waive a large part of the claims. According to Henning, 90 percent of the creditors reject this and the agreement falls through. In order to avert the bankruptcy proceedings, all creditors must agree. The rejection will be certified by a debt counselor or a law firm. “Only then can you file for bankruptcy,” says Henning.
Before the court opens the insolvency proceedings, it can present the creditors with a debt relief plan, the so-called debt settlement plan. This can make sense if debtors have in the meantime raised money from private individuals that can be divided among the creditors. The new offer is considered accepted if the majority of the creditors agree and the agreeing creditors account for more than half of the debt amount.
At the latest when the second debt relief proposal is rejected, the insolvency proceedings are opened. “With the opening, an insolvency administrator will be appointed, who will start to run for three years,” says Henning. The administrator is responsible for determining the remaining assets and using them to settle the costs of the proceedings and to pay off debts. For example, if debtors still have tangible assets such as their own property, they can be turned into money. Debtors are then in the so-called residual debt exemption period. If they have a regular income, part of it may be retained by the company and distributed among the creditors.
How high the attachable amount of income is depends on the amount of the net salary and any maintenance obligations – it can be found in the attachment table. What debtors do with the part of the money that cannot be seized is up to them, says Ines Moers.
Once three years have passed, the remaining debt is discharged. “The demands are not completely deleted, but they become imperfect demands,” says Henning. Debtors can still pay the debts voluntarily, but creditors can no longer demand them. The relevant Schufa entry will be deleted three years after the procedure has been completed.
Crime debts are not forgiven
How high the claims were at the beginning of the insolvency proceedings is of no importance either for the proceedings or for the discharge of residual debt. According to Henning, the only debts that remain after the private bankruptcy has been completed are criminal claims. “If you look at it quite rationally, there are actually no disadvantages of the personal bankruptcy procedure,” says Henning. “From an economic point of view, I can get out of debt for very little money.”
However, the process is not a sure-fire success. According to Ines Moers, the preparation alone takes at least six months or a year. Above all, Maria Loheide sees a need for improvement in the number of debt counseling centers. There are far too few of these, which sometimes result in months of waiting for those affected.
And what are the alternatives to consumer bankruptcy? In the event of insolvency, private individuals are not forced to file for bankruptcy. Anyone who does not start insolvency proceedings usually lives with a seizure protection account in which a certain amount of the deposits is protected from access by creditors. According to Henning, every three years a person comes from the office and seizes whatever assets can be obtained. If you seek professional help at an early stage, the insolvency proceedings can often be avoided, says Ines Moers. Then there are often countervalues such as real estate or a car that can be used to settle part of the debt. According to Moers, creditors are often willing to talk when debt counseling comes with comparisons or installment payments. (Christoph Jansch, dpa)
–
