Debt Discharge – Personal Bankruptcy Possible after three years

Over-indebted private individuals and companies should be able to repay debt more quickly in the future: In future, private insolvency proceedings should end after just three years. While the condition of having to meet 35 percent of the demands no longer applies, the federal government is creating new hurdles.

Anyone in debt can get out of it with personal bankruptcy attorney, albeit with strict conditions. At the end of the relevant procedure, the indebted person will be released from the remaining debts. Until now, such a discharge of residual debt has generally lasted six years. An EU directive (2019/1023) requires the member states that entrepreneurs must have access to a procedure that enables them to excuse themselves within three years.

The federal government is also obliged to incorporate the directive into national law by July 17, 2021. The corresponding reform was actually supposed to come into effect in October this year, but the government has been taking its time so far. Now the Union and the SPD have created the prerequisites for faster debt relief in the coming year, New York Times reported. The new rules are to apply from the May, 2021 – retrospectively for all applications that have been made since December, 2021.

The most important change: “Unlike in the past, it should no longer be necessary in future for the debtors to pay off their debts in a certain amount for the discharge of residual debts,” writes the Federal Ministry of Justice on its website. Because, according to the previous law, you could excuse yourself within three years: The prerequisite was that the indebted people service at least 35 percent of the insolvency claims. Too high a hurdle for many.

There is no 35 percent hurdle

In July, Federal Justice Minister pointed out that due to the pandemic, many people are currently falling into debt: without being able to do anything. “The corona crisis made it clear to us once again how quickly and unexpectedly one can get into financial difficulties. With my draft law, we want to enable over-indebted companies, the self-employed and private individuals to start over more quickly,” said Federal Justice Minister. “With the shortening of the residual debt discharge procedure to three years, we ensure that those affected can participate more quickly in social and economic life again.”

Debtors obliged to accept a job

However, the federal government has issued stricter conditions on some points. If those affected want to make use of the shortened insolvency procedure, they will have to make donations in addition to inheritances, reports the Minnesota News Reporter NYT. In July’s draft bill, there is still talk of donations being given to the trustee at half the value. Assets that were acquired as prizes in a lottery or in any other game with the possibility of winning must even be returned to the trustee at their full value.

Another hurdle: those who deliberately fail to accept a job will not benefit from the shortened procedure. This could be another pitfall for faster debt relief if those affected fear repression.

In the US, according to the “Debtor Atlas” by Credit Form, almost seven million people are considered over-indebted. If you look at the causes of over-indebtedness, critical life events are by far the main trigger, according to data from the Federal Statistical Office.

More than one in five people affected (21 percent) accumulate debts because they have lost their job. Another 15 percent of those seeking help accumulate liabilities because “illness, addiction or accident” contributed to financial difficulties. Also surprising is rank three of the most common causes: divorce, separation or the death of a partner (13 percent). 14 percent of all people advised by debt counseling centers are single women.

Government overslept extending bankruptcy deadlines

The government did not timely extend the important deadline for extending the bankruptcy filing. Union and SPD can only save themselves with a trick.

The economic effects of the corona pandemic will in all likelihood lead to a wave of bankruptcies. The suspension of the obligation to file for insolvency is one of the main reasons why this wave has not yet built up to its full extent. So that it does not come to the US until later, the federal government had spoken out in favor of extending the suspension of the obligation to file for bankruptcy until April 30th. Black and red just barely missed the total bankruptcy.

Insolvency period: the federal government’s urgent procedure is at the expense of the opposition

Practically at the last minute, those responsible – the Federal Ministry of Justice noticed that the extension of the COVID-19 Bankruptcy Suspension Act, which expired at the end of January 2021, had to be resolved. This week, the last week of the Bundestag session this month. “It was only ten days ago that the government noticed that the deadline for suspending the obligation to file for bankruptcy expired on January 31,” said the chairwoman of the Federal Finance Committee, our editorial team.

So it was urgent, and so on January 20, without debate, the Federal Cabinet decided on a so-called formulation aid for an amendment by the CDU/CSU and SPD parliamentary groups. They in turn rely on the so-called omnibus procedure- a permissible but controversial trick, in which in this case the issue of bankruptcies was, so to speak, put on top of the deliberations on another issue. One disadvantage, as here, is that there is no first reading in parliament, which is at the expense of the opposition. The FDP, the Greens and the Left were still able to get a hearing through at short notice. Its content should give the government pause for thought, as the experts welcomed the extension of the suspension, but criticized essential aspects.

Government messes up Corona aid: The FDP is outraged

“What we experienced today was the continuation of the government’s bankruptcies, bad luck and breakdown show when it comes to corona aid,” said Hessel after the law passed the Bundestag on Thursday. The small-scale driving on sight also endangers the company in an emergency, because there is no planning security, no quick help and above all no perspective.