What Is Over‑Indebtedness in Germany?

Over‑indebtedness (Überschuldung) is a legal condition defined by the German Insolvency Code (Insolvenzordnung, InsO) when a debtor’s total liabilities exceed the sum of their assets and expected future income. The status triggers specific rights and obligations, including the possibility of filing for consumer insolvency (Verbraucherinsolvenz).

Key points to remember:

• Debt‑to‑income ratio ≥ 100 % (liabilities ≥ assets)
• Existence of a viable repayment plan is assessed by the court
• The Insolvency Court may appoint a trustee (Insolvenzverwalter) to oversee restructuring or liquidation

Current Statistics: The Scope of the Problem

Source: Federal Statistical Office (Destatis) and German Federal Ministry of Justice (2024 report)

• Rising trend: Over‑indebtedness grew by 19 % between 2022 and 2024.
• Age groups most affected: 30‑45 years (working‑age) and 65+ years (retirees with limited pensions).
• Geographic hotspots: Urban areas with high living costs (Berlin, Hamburg, Munich) and regions with elevated unemployment (East Germany).

Primary Drivers Behind Over‑Indebtedness

1. Housing costs – rising rents and mortgage payments outpace wage growth.
2. Consumer credit – easy access to installment loans, credit cards, and “Buy‑Now‑Pay‑Later” schemes.
3. Energy price volatility – persistent utility bills strain household budgets.
4. unexpected life events – medical expenses, divorce, or job loss.
5. Financial illiteracy – lack of budgeting skills and insufficient awareness of legal debt‑relief options.

Legal Framework: How German Law Addresses Over‑Indebtedness

• Insolvency Code (InsO) §§ 18-39 – outlines the procedure for filing a consumer insolvency petition.
• Debt Relief Plan (Schuldner‑Entlastungsplan) – a court‑approved repayment schedule that can reduce or discharge remaining debts after a 6‑year “good behavior” period.
• Mandatory counseling – before filing, debtors must attend a Schuldnerberatung session (frequently enough provided by NGOs or law firms).
• protection from creditors – automatic stay (Insolvenzlicheitigungsbeschluss) halts collection actions once the insolvency petition is accepted.

Real‑World Impacts of Over‑Indebtedness

On Individuals

• Mental health strain – higher incidence of anxiety and depression.
• Credit score collapse – reduced access to future financing or rental contracts.
• Social stigma – reluctance to seek help, leading to prolonged debt cycles.

On the Economy

• Consumer spending decline – households focus on debt repayment rather than consumption.
• Higher default rates for banks – increased provisioning and tighter lending standards.
• Pressure on social services – more people rely on welfare benefits and public assistance programs.

Effective Solutions Offered by Brandt law Firm

1. comprehensive debt Counseling

• Free initial assessment – evaluates the debtor’s financial snapshot within 48 hours.
• Personalized budgeting plan – includes realistic expense categorisation and monthly cash‑flow analysis.

2. Preparation and Filing of consumer Insolvency

1. Collect all relevant documents (loan agreements,income statements,asset lists).
2. Draft a solvency report (Insolvenzplan) that satisfies § 290 InsO criteria.
3. Submit the petition to the local Insolvenzgericht and represent the client throughout the hearing.

3. Negotiation of Debt Restructuring Agreements

• Reduced interest rates – negotiate with banks to lower the APR by up to 3 percentage points.
• Extended repayment terms – secure up to 84 months of payment deferral, easing monthly burden.

4. Post‑Insolvency Support

• Credit rebuilding services – guide clients through the “good behavior” phase to restore creditworthiness.
• Legal advice on asset protection – advise on legally permissible ways to safeguard essential assets (e.g., basic home equity, pension rights).

practical Tips for Over‑Indebted Debtors

• Act early: The longer debts accumulate, the fewer options remain.
• Document everything: Keep copies of all contracts, payment receipts, and correspondence with creditors.
• Prioritise essential expenses: Rent, utilities, and food must be covered before discretionary spending.
• Utilise free counseling: Organizations such as the German Debt Counseling Association (DTV) offer no‑cost preliminary advice.
• Avoid new credit: Resist “quick‑fix” loans that often carry exorbitant interest rates.

Benefits of Engaging a Specialist Law Firm

• Legal expertise: Understanding of nuanced Insolvency Code provisions that DIY filings frequently enough miss.
• Strategic negotiation: Lawyers can leverage statutory rights to secure better settlement terms.
• Protection from aggressive creditors: Immediate filing of an insolvency petition triggers an automatic stay.
• Time savings: Professionals handle paperwork, court appearances, and communication, allowing clients to focus on financial recovery.

Case Study: Real‑World Submission of Brandt Law Firm’s Services

Client profile: 38‑year‑old freelance graphic designer from Berlin, €75,000 total debt, including €30,000 in unsecured consumer loans and €45,000 in overdue taxes.

Challenges:

• Irregular income stream, making monthly payments impractical.
• Threat of wage garnishment from tax authorities.

Solution pathway:

1. Debt audit – Identified €12,000 of duplicated loan payments that could be consolidated.
2. Negotiated tax deferral – Secured a 24‑month payment plan with the Finanzamt, reducing immediate cash‑flow pressure.
3. Filed consumer insolvency – The court approved a debt‑relief plan, resulting in a 45 % reduction of unsecured debt after the statutory discharge period.

Outcome (18 months later):

• Debt reduced to €15,000 (from €75,000).
• Restoration of a functional credit score (rating “good”).
• Re‑established stable freelance income with no legal actions pending.

Frequently Asked Questions (FAQs)

Quick-Action Checklist for Over‑Indebted Individuals

1. Gather all financial documents (contracts, bank statements, income proof).
2. Schedule a free consultation with Brandt Law Firm’s debt‑advice team.
3. complete a mandatory debt‑counseling session (if planning insolvency).
4. Decide on the optimal path: restructuring vs. filing for consumer insolvency.
5. Implement the agreed repayment plan or submit the insolvency petition within 90 days of counseling.