Young people are increasingly getting into debt. Sometimes the last resort is bankruptcy proceedings. But this freedom from debt comes at a high price.
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Rarely has it been as easy to accumulate debt as it is now. Whether it is with “buy now pay later” financing, which is almost a given when buying online, or by overdrawing your bank account. Young people in particular often get into financial difficulties. This is not just due to their desire to consume. Energy prices have been significantly higher than before for two years, the cost of living has generally increased, and after the Covid pandemic, many people had used up their financial cushion.
Crises often do not show up in the figures until two or three years later. But even people with sufficient reserves are currently making it easy to lose sight of their financial situation. Because if the credit rating is good, zero percent financing is immediately offered when making a purchase. These loans must continue to be paid even if, for example, the mobile phone purchased becomes history sooner than planned.
More young people affected by personal bankruptcy
The KSV 1870 recently announced this in its insolvency statistics. According to the analysis, the proportion of people under 25 who filed for personal insolvency in 2023 rose from 4.7 to 6.3 percent. Among 25- to 40-year-olds, the proportion is now almost 40 percent.
The level of debt has also risen sharply in these two groups: for those under 25, the average is just under 60,000 euros per person, and for those over 25, the average is 74,000 euros. To ensure that consumers do not lose track, the EU recently introduced the Consumer Credit Directive. It sounds complicated, but the goal is simple: customers should be informed exactly about the final amount due when they sign the contract. This affects banks and online platforms that lend small amounts.
Debt counseling can help with debt
It is important that all providers with a “buy now pay later” option are also obliged to do this. The basic rule is: anyone who has financial problems should seek out debt counseling. These are available free of charge throughout Austria. Together with the counseling center, you get an overview of your financial situation, and the counseling center also takes over communication with creditors. This often relieves debtors of psychological pressure.
The state-recognized debt counseling services provide advice on a public contract and are financed with public funds. In 2022, this totaled 17.75 million euros, the majority of which comes from the states themselves, around seven percent from the Public Employment Service (AMS) and almost six percent from public funding.
However, small and medium-sized businesses in particular often hesitate for a long time before seeking debt advice. This clientele prefers to contact a financial advisor or bank advisor. To get around this problem, the Upper Austrian debt advice service, for example, has set up budget advice: This is aimed at people who are not yet over-indebted.
Last resort: personal bankruptcy
But if that doesn’t help either, there is one last option: insolvency proceedings, better known as personal bankruptcy. But what happens in the event of personal bankruptcy? First of all, there is no specific level of debt at which it is advisable or mandatory to file for personal bankruptcy. However, insolvency is a prerequisite for the opening of insolvency proceedings. This occurs when the debtor is no longer able to service the outstanding liabilities.
It does not matter how much assets or income are available – the procedure regulated in the Insolvency Ordinance makes it possible to become debt-free within three years. The first relief comes immediately after the proceedings have been opened.
No further interest is charged on the debt. Quota via plan. There are then two variants: The first option is to pay off debt with a payment plan: The debtor offers the creditors at least a quota that corresponds to their own income situation in the following three years. The term must not exceed seven years. The prerequisite is that everything the debtor owns is converted into money.
The second option is the debt collection procedure. However, this leaves the debtor with only the bare necessities for life. This option is only possible if the payment plan offered was rejected. This happens, for example, if one of the creditors assumes that extraordinary payments will be due in the next three years.
Gifts or inheritances are also included in the debt collection process. Or if the proposed quota is too low. If the debtor is unemployed at the time, the person is obliged to actively seek a new job. After the procedure is completed, the debtor is usually debt-free. This also offers a unique opportunity: the person can then start from scratch financially.
Information at a glance
- Personal bankruptcy
If a debtor can no longer pay the debts due within a reasonable period of time, he or she is insolvent. In most cases, the person can be discharged of debt through private insolvency proceedings, a so-called private bankruptcy. - Payment plan
The payment plan is decided at the general meeting. A payment plan sets out how the creditor wants to pay off the debt: the quota offered must correspond to the income situation. - Recovery procedure
If a payment plan cannot be concluded due to a lack of consent from the creditors, the debt collection procedure comes into effect. Reasons for rejecting the payment plan include, for example, that the quota offered appears to be too low.
Text by Susanne Bickel, financial expert in cooperation with “Die Presse”. Together with advisory centres
you can get a good overview. You can find out more about this topic in the podcast at: diepresse.com/podcast
