iff over-indebtedness-report 2015 – key findings

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Positive trends in the labour market fail to deliver a significant fall in the incidence of overindebtedness

The seasonally adjusted unemployment figures for 2014 amounted to just 6.5 per cent (2013: 6.7 per cent). A further fall to 6.3 per cent for the current year has been predicted by various institutions. The steady rise in employment rates continued into mid-2015. A further rise in economic activity is envisaged for 2015. The positive development of the labour market has not, however, had a significant impact on reducing entrenched overindebtedness. The 2014 Creditreform report estimated that 6.7 million people exhibited what were characterised as negative criteria (such as payment arrears or financial disclosure measures); about 500,000 individuals were in receipt of non-profit debt advice and about 700,000 individuals were awaiting debt cancellation on completion of personal bankruptcy procedures. Further, the number of people in receipt of state benefits despite being in work remained at 1.3 million in 2014, only slightly fewer than in the previous year.

A further significant fall in personal bankruptcies
In 2014 only 84,443 personal bankruptcy proceedings were commenced, which was a record 8-year low. In 2010, the number stood at 106,290, in 2013 it was 89,207. The drop in the statistics occurred despite the implementation of a reform of personal bankruptcy procedures on 1 July 2014, which provided a potential shortening of the debt cancellation period in personal bankruptcy proceedings to three years. In part contrary to predictions, there was no run on the bankruptcy courts. It therefore appears that personal bankruptcy proceedings are in many cases not an attractive proposition from the perspective of those entitled to apply, even after the reform.

In 2014, income poverty was the second most frequent cause of overindebtedness
Despite the favourable economic data, income poverty in 2014 was the second most frequent cause of overindebtedness in 10.5 per cent of cases. Only unemployment and reduced working (together amounting to 26.8 per cent) were more significant. Taken together, these two factors suggest an increase in precarious employment. The other four most significant causes of overindebtedness in 2014 were business failure (10 per cent), divorce and separation (9 per cent), irrational consumer behaviour (8.6 per cent) and sickness (7.7 per cent). Overall, in 2014 the main cause of almost three-quarters of cases of overindebtedness was thus reported to be one of the “Big Six” listed above.

Average indebtedness rises slightly to 32,500 euros
In contrast with the previous period, average indebtedness of those seeking advice in 2014 rose again slightly to 32,500 euros (2013: 31,434 euros). This increase originated solely in the group identified as those formerly in business, whose indebtedness amounted to an average of 87,015 euros (2013: 63,525 euros). The indebtedness of other groups, who at 90 per cent comprised the largest group, fell slightly in 2014 to 27,884 euros (2013: 28,513 euros). Debts were distributed across an average of 12 creditors of various types. Of the debts, 28,308 euros were attributed to the principal sum and 4,193 euros to interest on arrears, debt collection and other enforcement costs (amounting to 15 per cent). Banks formed the largest creditor group. In 2014, almost half of all debts were owed to banks (15,480 euros or 47.6 per cent). A significant proportion of the debts were attributed to the government as creditor (2,055 euros or 16.9 per cent) and debt collection agencies (1,940 euros or 11 per cent). Indebtedness in cases dealt with outside the courts was on average half as great as in those in which insolvency procedures were initiated (16,236 euros against 34,902 euros).

A small fall in indebtedness of single parents
The average age of overindebted individuals in 2014, as in the previous year, was 40, and thus was slightly below the average age of the German population, this being 44. Over 62 per cent of those seeking advice from debt advice agencies in 2014 were between 25 and 50 years of age. Clients of debt advice agencies living alone in 2014 formed almost as large a group (57 per cent) – significantly more than in the population as a whole (41 per cent). The percentage of single parents fell slightly for the second year in a row (from 16.2 per cent in 2013 to 15.3 per cent in 2014), but remains considerably above the average in the population as a whole (6.7 per cent).

Positive developments in current accounts and Protected Accounts (P-Konto)
In 2014, 9.4 per cent of those seeking debt advice still had no bank account (2013: 8.7 per cent), but overall the problem in the past of the numbers of the unbanked has receded (from 16.7 per cent in 2004 to 9.4 per cent in 2014). Moreover the percentage of clients with access to a conventional current account with all the usual facilities has finally risen (from 31.8 per cent in 2004 to 34.7 per cent in 2014). The number of “Pfändungsschutzkonten”, or accounts protected from seizure by creditors, which automatically and without bureaucracy retain a sum of money for free use by the customer, has risen continuously since their introduction in 2010. 1.8 million such accounts were registered at SCHUFA at the end of 2014, and the actual number may currently be well above the 2 million mark.

One-fifth of all cases dealt with successfully through debt release schemes outside the courts
Insolvency proceedings continue to dominate routine debt advice cases (56.7 per cent of advice outcomes), which are applied on average three times more frequently than settlements outside the courts (20 per cent of advice outcomes). 34 per cent of non-judicial settlements are based on single payments and in 10 per cent of cases there is a combination of single payments and instalment plans. In 50 per cent of cases surveyed, instalment plans alone are applied. The remainder are “zero payment plans”. In order for non-court procedures to succeed, rapid, professional support is essential. Where non-court procedures succeed, average indebtedness amounts to 16,235 euros consisting on average of only six claims.