Bankruptcy as a last hope for private customers
In the past people who owed money to others often could never get rid of that debt. The long period of limitations was 30 years and and attempt to be free of debt some day would be futile. In 1999, the German government changed this law. Since then, the debtor can file for private bankruptcy. To go this route, however, is not easy.
The procedure itself seems to be simple. During a period of compliance, the debtor has to do his very best to pay back his debts for six years. After that period, all debts are erased from the credit history and the debtor can have a new start in life. The debtor will offer a settlement to all creditors. Usually these first settlements are rejected because it means that the creditor will lose most of the original credit amount.
A judge will open the official procedure for filing bankruptcy after acknowledging that the debtor has no further assets. Over the next six years, the debtor can only spend the money that is left after the maximum garnishment on his income. The seized money is forwarded to a repository who will allocat the money to the different creditors. The debtor is left with a monthly amount that equals the same amount as social welfare under the Hartz-IV-law would provide. But after six years the
debtor´s credit history is totally clean again.
However, there are some sticking points on the path that will have to be avoided because even small mistakes can make the bankruptcy invalid. It is most important that the debtor lists every debt he has and names every single creditor. If any creditors show up later, the entire bankruptcy is in danger.
It is not possible for a debtor to simply file bankruptcy himself. The assistance of a lawyer or a certified credit counselor is required for this. Lawyers do not work pro bono usually, and debtors should beware of credit counselors who demand fees. Cost-free credit counselors are overburdened though, so filing bankruptcy can take a long time in the end.