Personal Bankruptcy in Germany

What is it about?

The purpose of this paper is to investigate to what extent the increased insolvency filings by migrants since the enactment of the consumer insolvency law in 1999 is associated with moral hazard. It describes the profile of migrant debtors and highlights the areas of moral hazard. The study aims to propose changes to consumer bankruptcy system. Empirical evidence for this work consists of primary data from 435 individuals mainly with immigration background who were declared bankrupt by district courts (Amtsgericht). Both qualitative and quantitative research types were used. Interviews helped to attain in-depth understanding of the way in which any misconduct may take place. Quantitative data was gathered to understand the debt profile of migrant debtors, types of liabilities and creditors’ reactions to write-off requests. The paper provides empirical insighst about the way misconduct is pursued and suggests that neither party, i.e. the debtors through debt counsellors and creditors/factoring companies or their representatives, is entirely free of unethical practice. Hence, the paper stresses the need to establish public agencies which provide joint mediation services for private debtors and their creditors alike. Data collected for the purpose of this study may not be comprehensive, because given the sensitivity of the area of study, that is misconduct - including breaking the law -, not all machinations may have been revealed and described in this work. Therefore, further research needs to be conducted in this field. The paper has implications for policy makers. Consumer bankruptcy system is relatively new and needs to be amended to allow debtors and creditors to negotiate write-offs not by sending countless letters through their respective representatives, that is also carried out over a long period of time, but to try to come to terms in one agency which is responsible for both sides. The findings in this paper may provide some valuable insights which could also give impulses to debates on problems that may come with immigration. To our best knowledge no research exists that analyses the topic at hand with such extensive data as well as using both methods of research at the same time.

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Photo by William Iven on Unsplash

Photo by William Iven on Unsplash