Debts

What are debts?

• If you borrow money from a friend or colleague, of even from the bank, and you have to give it back, then that is called a debt.

• But not all debts are the same. There are different kinds, and of course different amounts. And of course, it’s things like that which make them either easy to manage or a big problem for you.

• There are ‘genuine’ debts, such as for your room rent or if you suddenly have to make back-payments on your health insurance or tax.
  
  Provided you can pay these back from your own money, they don’t necessarily have to be a problem. But if debts get too high, they can become a big burden for you.

• There are, however, ‘fake’ debts, such as if somebody claims you owe them money even though you don’t. They are not allowed to do that and you should not stand for it. If you would like to know more about that, ask us at cara*SH.

• Whatever kind of debts you may have, don’t just sweep them under the carpet. Get advice – you can do something.

• Here at cara*SH we can gladly accompany you to advice centres to get help.

When does a debt become excessive?

• Excessive debt means you can no longer pay your debts using your own money.

• It is important not to ignore excessive debt. If you ignore invoices or demands to pay, then your debts will only grow because collection fees and interest will be added. Then the burden will become greater for you.

I don’t have enough money to pay back my debts. What can I do about it?

• Try to get a clear view of what debts you have. Organise them according to urgency, prioritising the payments that are most important.

• Contact the people you owe money to (they’re called ‘creditors’). Ask them if you may pay back the debts in instalments – in other words, in pieces – or ask them to cancel part of the debt.

• A debt advisor may be able to help you. They can give you advice about how to get rid of or reduce some of your debts.

• If you like, we at cara*SH can help you find a debt advisor and we can go with you to meet them as well.

Can I pay my debts by taking out a loan?

• You can, but it is not always a good idea, since it will only create new debts.

• A new loan will allow you to give your creditors their money back straight away, but someone else will expect back the money you borrow, and usually they will want more than they lent you (that is called ‘interest’).

• Ask a debt advisor about better ways of paying back your debts.

What is insolvency?

• Insolvency means you’re unable to pay. In other words, your debts are so high that you can’t even pay them back in instalments.
  
  Here’s an example: you earn €1,500 net, but you have debts amounting to €70,000. Even if you agree on instalments, it may not ever be possible to pay back that debt.

• Excess debt does not always mean insolvency.
  
  If your debts are so high that you can’t pay them off in one go, but it remains foreseeable that you may still be able to pay them off in instalments, then you are excessively indebted but not insolvent. For instance: if you owe various people or companies a total of €2,800, you could agree instalments and pay off the debts within one year.

• Begin by trying to work with a debt advisor to find a solution that suits the people who are expecting money from you. This is called a debt settlement process.

• If this debt settlement process doesn’t work, then you can register for insolvency.

• Insolvency proceedings take a lot more time and energy, and you are not allowed to take out any new debts while they are ongoing. Once insolvency proceedings are behind you, you will be free of debts, however. It usually takes six years.

What might happen to me?

• If you do not pay an invoice, you will begin by getting a warning letter. This is a demand for you to pay your debts.

• If you do not respond to that demand, then your creditor will turn to the courts. The court will then send you a summons.

• If you do not respond to that summons either, then the court will send you an enforcement order.

• If that happens, a bailiff may visit you and take away valuable things. This is called ‘seizing’. They may take away your mobile phone, camera, DVD player, jewellery and so on.

• Seizure can also extend to your bank account, and this is called ‘account attachment’.
  
  So if you have money in your account, they can seize that too. This money will then be sent to your creditors.

• You may also receive a negative credit rating because of this. That is a kind of memo which says you’ve failed to pay debts in the past. If you get a negative credit rating, it may become difficult to rent a new apartment or take out a new mobile phone contract.

Will I have to go to prison because of my debts?

• No. You cannot be imprisoned in Germany because of debts.

• However, you must provide information about your assets. That means, you may not keep your financial situation a secret.

• Only if you are unwilling to do that do you risk imprisonment.