Number of personal insolvencies in Germany down again in 2020 - sharp rise in insolvencies expected

Personal insolvencies in Germany fell again in 2020 despite the coronavirus pandemic.

There were a total of 56,324 personal insolvencies last year, 35.1 percent fewer than in 2019, according to the key findings from the "Debt Barometer 2020" published by information service provider CRIFBÜRGEL.

Personal insolvencies in 2020 fell for the tenth time in a row to the lowest level since 2004 (39,213 personal insolvencies). Compared with the record year of 2010, when 139,110 private individuals filed for insolvency over the space of a year, personal insolvencies more than halved last year (down 59.5 percent).

There are three main reasons why personal insolvencies in Germany fell so sharply during the coronavirus pandemic:

• The first is that short-term work and personal savings have partially mitigated the financial problems of German citizens. In addition, there was a marked reluctance to make purchases in 2020 and a curtailment of consumption among private individuals.
• Secondly, the availability of debt counseling services was severely limited, as reported by the debt counseling service in Schleswig-Holstein, among others, with the result that many over-indebted consumers decided not to seek counseling last year or deliberately postponed it. In the event of insolvency or over-indebtedness, private individuals are not directly obliged to file for insolvency.
• Thirdly, the fact that the number of personal insolvencies is so low is also due to the fact that many private individuals held back their applications last year. They wanted to benefit from a legal reform that in the future will allow those affected by personal insolvencies to obtain residual debt discharge after just three years, instead of the previous six years. Since this reform is a major advantage for indebted private individuals, many petitioners have been waiting for the corresponding resolution of the Bundestag. The reduction of the residual debt discharge procedure to three years will also apply retroactively to all insolvency proceedings filed from October 1, 2020. This will also help those debtors who have fallen into insolvency as a result of the COVID-19 pandemic to make a fresh financial start.

"The decline in personal insolvencies should not be interpreted as a sign of improvement, but as the beginning of a wave of insolvencies. The numbers obscure the real financial situation of many private individuals. The coronavirus crisis is an example of how an external event can exacerbate the situation of many people", commented CRIFBÜRGEL Managing Director Dr. Frank Schlein on the current figures.

"Without the coronavirus pandemic, there would have been up to 25,000 more personal insolvency proceedings in Germany last year," Schlein said. "These will be added downstream to this year's insolvencies. Therefore, based on our model calculations, we are currently assuming up to 90,000 personal insolvencies for 2021. The insolvency statistics refer to a situation in the past. Therefore, the economic consequences of the coronavirus crisis will not have an impact on insolvency figures until 2021 or even 2022," Schlein explained. "In 2022, there could then be 100,000 personal insolvencies in Germany."

The economic consequences of the coronavirus pandemic not only threaten the livelihoods of employees in the low-wage sector, but are also clearly noticeable in the middle-income sector, e.g. through short-term work. In addition, higher unemployment will again lead to more personal insolvencies, as affected consumers will have less money at their disposal while costs remain high. This leaves people with less money to meet their obligations such as loan payments, rent or financing. In the long run, less income leads first to over-indebtedness and then to personal insolvency.

The northern German states are more affected by personal insolvencies in 2020 than those in the south. Bremen, for example, leads the statistics with 112 personal insolvencies per 100,000 inhabitants. It is followed by Lower Saxony with 104 insolvency cases per 100,000 inhabitants. The national average last year was 68 personal insolvencies per 100,000 inhabitants. Also above this average are the states of Saxony-Anhalt (95), Schleswig-Holstein (87), Brandenburg (79), Saarland (78), North Rhine-Westphalia and Hamburg (74 each), and Mecklenburg-Western Pomerania (73). The fewest personal insolvencies in 2020 were in Bavaria (44 cases per 100,000 inhabitants), Baden-Württemberg (50) and Thuringia (54).

In terms of absolute personal insolvency figures, North Rhine-Westphalia (13,322), Lower Saxony (8,346) and Bavaria (5,769) top the list.