A faster way out of debt
The new regulations are part of the government’s economic stimulus and crisis management package. With a view to the economic consequences of the coronavirus pandemic in particular, honest debtors are to be given the chance to make a new start more swiftly. The new provisions also implement the EU directive on restructuring and insolvency for the field of debt relief.
As has been the case hitherto, debtors are required to comply with extensive disclosure and cooperation obligations before residual debt can be discharged. They are, for instance, required to be gainfully employed or endeavour to become gainfully employed. There can be no known reason to refuse to discharge residual debt and no such grounds can be invoked by creditors. Only honest debtors are to see their residual debt discharged. This can be refused if the debtor incurs "inappropriate liabilities" with intent or due to gross negligence during the good conduct period.
The discharge of residual debt allows debtors to be liberated from obligations not performed vis à vis their creditors under certain circumstances. This is designed to give them the chance to make a new economic start.
Here are the new provisions in detail:
- The shorter three-year proceedings are to apply to all applications lodged as of 1 October 2020. For consumers, these provisions are to apply initially until 30 June 2025, at which point they will be evaluated.
- For insolvency proceedings requested between 17 December 2019 and 30 September 2020, a transitional provision shall apply. In these cases, the current regular period of six years before discharge of residual debt will be reduced by the number of full months between the EU directive coming into effect on 16 July 2019 and the insolvency application. There is also an option of early discharge of residual debt under existing law.
- Insolvency-related bans on professional activities will in future cease to apply as of the end of the debt relief period. New permits must however be sought for activities requiring permission or licences.
- The current ten-year limit before any second discharge of residual debt proceedings will be raised to eleven years. Then proceedings would also be longer, at five years. The shorter proceedings are not to result in debtors obtaining swifter debt relief a second time, should they once again become indebted.
The new provisions are based on experience to date with company and consumer insolvency: To date, in the vast majority of cases, creditors have been able to expect significant settlements in the case of an insolvent company where a three-year residual debt discharge procedure has been conducted.
In the case of consumer insolvency, insolvency claims are not generally settled even with a regular six-year residual debt discharge procedure. Unforeseeable events that plunge individuals into debt through no fault of their own (ill health, divorce, unemployment) are the main causes of excessive consumer debt. They cannot generally be managed by changing the duration of the residual debt discharge procedure.