Overindebtedness - Last resort is personal insolvency

^{Destatis, 15 January 2008}

Improved data situation on overindebtedness of individuals

Consumer insolvencies

There are no exact data on how many households are overindebted. Depending on the definition and on the interests involved, the expert’s opinions on the number of absolutely or relatively overindebted households vary between just under three million and far more than three million.

Reliable data on the absolute overindebtedness of individuals – not of households – are provided by the courts. Those persons are seriously in arrears with their payments to an extent that the last resort is personal insolvency. Since the new insolvency law was introduced in 1999, almost 400,000 individuals used the possibility to overcome their insolvency by means of a consumer insolvency procedure, so that they can be freed from their remaining debts after a period of good conduct. The insolvency of another 300,000 persons considered as absolutely overindebted is due to self-employment actively performed at present or in the past. Those persons have the same opportunity as consumers to have their debts regulated by courts. The total number of personal insolvencies has considerably increased every year, and new cases occur all the time. The causes are not necessarily found in the present but can go back many years into the past. Many persons become aware only now of the possibility to have their debts regulated by courts or are made aware of that especially by the debt advice centres.

The court documents provide complete information on the number of personal insolvencies, but not on the total number of all overindebted persons, neither do they contain information on the group of persons or on the factors leading to overindebtedness. To find out at least the socio-economic structures of the overindebted persons and to give statistical evidence of the causes and main creditors, the debt advice centres were asked about their clients for the first time in late 2006. That voluntary survey made a major contribution to presenting the debt situation of individuals.

Debt advice centres: Contact points for persons seeking advice on financial problems

The function of debt advice centres is to provide reasonable support to people who have got, or are in danger of getting into social, economic or existential distress. Such support is aimed at restoring the economic situation of those concerned and is intended to enable them to arrange their lives on their own. The advice offered also includes prevention. Through their activities, the advice centres have a large data pool on overindebtedness that can be used for statistical purposes. 124 of the total of just under 1,000 advice centres, which are organised by consumer and welfare organisations as well as municipalities, transmitted data on 33,000 persons for the year of 2006. However, those persons are not necessarily overindebted. Sometimes there was just a temporary payment problem or the consequences of an unwillingness to pay must be overcome. Just under 300 advice centres have indicated their readiness to participate in the survey from 2008, so that the data basis will probably rise to 80,000 persons.

Changes in personal circumstances are main reason for overindebtedness

Selected main reasons for overindebtedness

People who – with or without fault of their own – have got into financial distress often lose their social status and sometimes they are socially excluded. Unemployment and unexpected serious changes in personal circumstances are a heavy burden even without considering the financial consequences involved. 30% of the persons consulted indicated unemployment as the reason for their financial problems. For more than one fifth, critical events in life such as divorce, separation, partner’s death or sickness and accident were the reasons of the misery. For 13% of the persons consulted, self-inflicted payment problems, for example because of inefficient housekeeping, failed real estate financing or unlawful acts, were the reasons for seeking a centre’s advice. For 10% of the persons consulted, the reason of overindebtedness was failed self-employment.

Total debt amounting to an estimated EUR 70 billion

Over 40% of all persons consulted do not have more than four creditors. On average, all persons covered have debts of EUR 37,000. It should be taken into account here that this total includes the mortgage loans for real estate financing and the liabilities from former self-employment. Those debts are generally higher than other types of debt. Real estate owners with debts they cannot pay have average debts of EUR 160,000. Persons with liabilities from former self-employment owe an average EUR 96,000 to their creditors. When excluding persons with mortgage liabilities and former self-employed persons, the average debt is EUR 22,000.

If we assume that overindebted households not seeking advice from debt advice centres show similar debt structures, the total debt volume of households in Germany can be estimated. If we take the expert’s opinion indicating the smallest number of overindebted households (just under three million), the total debt volume of overindebted households (excl. self-employed and mortgage debtors) – with an average debt of EUR 22,000 – would be an estimated EUR 65 to 70 billion. The financial results of the insolvency procedures suggest that most of those receivables are uncollectible.

Even for persons who neither have mortgage debts nor were self-employed in the past, just under half of all debts are due to banks in the form of instalment or overdraft credits. What follows far behind is debt due to public creditors such as tax offices (6%) and unpaid rent (4%). Persons unable to pay their liabilities from instalment credits have average debts of EUR 21,000 with their banks. Where persons have debts with other individuals, those debts amount to over EUR 10,000. Unmet obligations to provide maintenance amount to an average EUR 6,000.

Average debt, by age groups

Depending on age and way of life, there are different main types and levels of debt. Let us just mention a few examples of the manifold findings provided by that statistics: Although overindebted people aged under 20 years have the lowest amounts of instalment credits payable (EUR 13,000), they have the highest unpaid telephone bills (EUR 1,900) of all age groups. People aged 65 to 70 have the highest debts with mail order houses (EUR 3,900) of all age groups. The highest rent arrears are observed for those aged 55 to 65 years as well as lone parents. Unmet obligations to provide maintenance refer above all to single men, who are in arrears amounting to an average of over EUR 6,000.

Detailed results and a description of the statistics are contained in issue 10 of Wirtschaft und Statistik. Detailed tables can be provided upon request.

Author:
Jürgen Angele - Federal Statistical Office Germany

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