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August 24, 2020
Freedom from debt after three years: New law for insolvency of entrepreneurs and consumers


Over seven million households and twice as many individuals in Germany are currently over-indebted. Experts even expect the figures to continue to rise significantly in the years 2020/2021 due to the corona pandemic. It is therefore fitting that a new law is expected to come into force on October 1, 2020, which will make debtors debt-free after just three years instead of six.

At the beginning of July 2020, the German government decided on an important change to the insolvency rules based on an EU directive, on which the Bundestag will decide on September 9, 2020. As is well known, it has taken six years to cancel a debt. Under the new rules, over-indebted persons who file for insolvency from October 1, 2020, will be released from their debts after only three years, and even without having to pay minimum amounts. Accordingly, applicants who are not yet in insolvency proceedings should withdraw their insolvency application and then file it again in October - only then will the short 3-year waiting period for debt relief apply. However, it is best to discuss each individual case in advance with an insolvency specialist.

The new regulations also stipulate that consumers must still try to reach an out-of-court settlement with creditors first, while entrepreneurs can file for insolvency immediately. One is considered a consumer if the financial circumstances are manageable or if there is no commercial activity. The previous attempt of the consumers to reach an agreement is certified by debtor advisory offices, among others. In addition, the debtor must continue to work or at least try to find work, he may not conceal existing assets and must give up inheritances, gifts and lottery winnings in full. The insolvency court can refuse the above-mentioned debt relief if in the period of three years unreasonably high new debts have been incurred - a definition that is criticized by experts as unclear. Further residual debt relief is permitted after the first one, at the earliest again after eleven years, with the duration of proceedings then being five instead of three years. This long compulsory pause is intended to prevent debts from being deliberately built up in order to have them quickly cancelled by means of private insolvency.

While consumer protectors find the compulsory break of eleven years too long and see it as an unnecessary punishment, business associations criticize that debts are now being cancelled far too early. On the one hand, payment morale suffers as a result, and on the other hand, it would make it easier to run up debts without worries. However, the fear of a decline in payment morale seems unfounded, after all, according to SCHUFA the credit repayment rate is currently very high at almost 98 percent. Besides debts are based less on a lacking payment moral, but arise substantially more frequently by unemployment, illness, credits, separation consequences or a failed vocational independence.

Contact person
Ulrich Weber

Phone: +49 30 253780-33