From November 1, 2017, significant changes to the debt settlement procedure (also known as personal bankruptcy) will come into force. In particular, it will now be possible to discharge debts within five years. In future, there will no longer be a minimum quota for low-income individuals. However, the legislator has also made it much easier for natural persons to free themselves from the so-called “debt trap”.

Debt settlement proceedings are generally only open to natural persons. It is irrelevant whether the debt stems from a business activity or from personal life. Only the question of which court has jurisdiction depends on whether the debtor is running a business at the time the application is filed. If this is the case, the regional court or district court in whose district the debtor has his habitual residence has jurisdiction.

Debt settlement proceedings can also be opened in future if the debtor has no assets to cover the insolvency proceedings. What is new, however, is that a debtor no longer has to seek an out-of-court settlement before filing for insolvency. Against the background of the abolition of the minimum quota in absorption proceedings, the removal of this requirement is a logical consequence. Previously, the debtor had to attempt to reach an agreement with the creditors before applying for restructuring proceedings. In practice, such efforts were regularly unsuccessful, but involved some effort.

Contrary to the media narrative, it will not be possible for every debtor to discharge their debts with a complete “zero quota” in the future either. Even after the reform, debtors will still have to offer creditors a payment plan. This must include at least a quota that corresponds to the debtor’s income situation over the next five years. Only if no attachable income is expected to be received or if this only slightly exceeds the minimum subsistence level is it not necessary to offer a payment plan.

If this is the case, the debtor can now immediately apply for debt collection proceedings . However, the court must refrain from initiating skimming proceedings,
– if the debtor does not engage in appropriate gainful employment during the insolvency proceedings or
– if the debtor was without employment, did not seek such employment or refused reasonable employment.
These grounds are in addition to the other existing grounds for refusal .

If a debt collection procedure is initiated, the debtor must hand over the attachable part of their income to a trustee for the next five years. At the end of these five years, the debtor must be granted discharge of residual debt. This also applies in the event that the creditor has not made any payments. However, even after the reform, the debtor is obliged to pursue appropriate gainful employment during the debt collection proceedings. In addition, the law already had a list of obligations on the part of the debtor, the deliberate breach of which led to the termination of the debt collection proceedings without discharge of residual debt.

When reforming the restructuring procedure, the legislator clearly had particularly low income earners in mind. Despite their efforts, they were regularly unable to meet the 10% minimum quota. In order to enable such debtors to return to a debt-free life after five years, the minimum quota was removed from the law.