iff over-indebtedness-report 2011 – key findings

Key findings 2011 in English (pdf)

Rise in personal insolvencies in 2010, turn in trend for 2011

The effects of the German economic crisis of 2008/2009 have only made their way in to the personal over-indebtedness statistics with a time lag of 1 ½ years. Last year, the number of consumer insolvency procedures opened in Germany reached a peak since the introduction of personal bankruptcy procedures in 1999. With 106,300 individual cases opened throughout 2010, this is the second time that these figures exceed the 100,000 mark (after 2007: 103,100). On account of the decline in Germany’s unemployment rate since the middle of 2009, a reversal of the trend is expected for the second half of the year 2011. Indications of this turnaround are already visible in the decline in insolvency openings recorded in the first quarter of 2011.

“Irresponsible consumption” at its lowest level since 2005
The “big four” triggers of over-indebtedness and personal bankruptcy remain: unemployment with 31.0 % of cases (31.6 % in 2009), divorce or separation with 12.6 % (11.7 % in 2009), failed attempt at self-employment with 9.7 % (9.2 % in 2009) and irresponsible consumption behaviour accounting for 10.4 % (11.8 % in 2009).

Deterioration in the level of education and vocational training
The levels of educational attainment, professional training as well as the overall employment situation have gotten worse for over-indebted-persons over past years. Similarly to developments with regard to school educational attainment, those with a deficit in professional qualification (“knowledge gap”) make up 25 percentage points more of total over-indebted persons compared to the same figure for the German population (44.5 % instead of 19.6 %), and is clearly much higher the younger the cohort.

Over-indebtedness process lasts 15 years
The entire over-indebtedness process, from the first recognised sign of over-indebtedness till discharge from all outstanding debts and deleted entries from all credit registers, lasts an average of 15 years (62 months from the trigger of insolvency until first contact is established with a debt advice agency, 4 months of counselling, 72 months of probation during the ‘good behaviour’ phase, and 36 months of continued storage of personal data and negative entry in one’s credit history within credit registers).

Significant decline in the average amount of outstanding debt to 27,132 euros
In comparison to the year before, the average size of indebtedness for an over-indebted household fell from 31,995 euros to 27,132 euros. This decline is largely attributable to lower outstanding debt amounts for bank loans, which saw a decrease from around 17,000 euros in 2007 to 13,675 euros in 2010. Banks still nevertheless remain the most important creditor group for the over-indebted.

Increasing number of private debts to the public sector
Public sector entities appear as a creditor in three out of four cases of over-indebtedness. With average debts of 3,824 euros, the state constitutes the second largest creditor being owed money.

Single parents still remain the most vulnerable
Single parents with minor children are over proportionately afflicted with a situation of over-indebtedness, making up a share of 17 % of all over-indebted households, compared to the 7 % share which this socioeconomic group represents in the overall German population. A similar observation can be made with regards to their relative share in poverty statistics.

Over-indebted households have predominantly low incomes and a lack of assets
Over indebted households will typically have no or very few assets. Of the 75 % of those over-indebted that stated they had assets of some sort, the registered properties were not worth more than 1,027 euros, and half of those households possessed objects whose values did not exceed 305 euros. In addition, eight of ten over-indebted households meet the definition of being classified as income poor, i.e. that they dispose of less than 60 % of the German average per capita income.

Slight improvement in unbanked households
The provision of a current account to over-indebted households has only slightly improved. The share of those without a transaction account at a bank or other financial institution decreased by about 1 percentage point from 18 % in 2009 to 17 % in 2010. The “Pfändungsschutzkonto” (“seizure protection account”), introduced in 2010, shows only little effect as of today.