Corona is becoming a debt problem for consumers

It all started with Yannick H. * at 5,000 euros. * A consumer loan back then, seven years ago. Not for the smartphone or the game console, but for the stroller and a crib, the first child has just been born. Then the car installments, 317 euros per month. Another loan to pay off the first. And other. “Buy first, pay later, 0 percent financing, that’s screaming at you everywhere,” Yannick H. says over the phone. At some point he divorced his wife. Another move, job change, more loans.

The 40-year-old man now lives in Cologne. 2020 should be his year, finally: he had completed additional training and wanted to start over as a freelance media designer and sound engineer. Orders were received and it was complete in July. But then Corona arrived. At first, only the big events where he was supposed to take care of the sound were canceled. Finally all. Investments in the studio, all the equipment, for nothing. Only debts remained, old and new.

H. is desperately looking for a new job, starts in a company in Düsseldorf, travels an hour there and an hour back every day. It doesn’t matter, the main thing is that money comes back in. It is enough for the rent and the bare minimum. But it’s not enough for the rates: “Right now there are three institutes calling me an average of eight times a day,” says Yannick H. Block callers. It no longer opens the post. Creditors and debt collection companies demand about 60,000 euros. “At some point I just lost my overview. And then I put my head in the sand using the ostrich method.”

There are many people like Yannick H. in Germany. Around 6.9 million are considered over-indebted. This means: With their income, they can no longer pay their current loan payments. Last resort: consumer bankruptcy. It affects more men (12.5 percent) than women (7.65 percent), slightly more East Germans than West Germans (10.3 percent to 9.9 percent). The summary:

The numbers are alarming enough. But old. They refer to 2019. Everything before Corona. How many over-indebted people are there today? How has Corona affected the debtor’s situation? What sums are we talking about? There are no official figures on this. The Federal Statistical Office collects data once a year from the many regional and municipal debt counseling agencies that report the figures on a voluntary basis. And now I have everything else to do except count cases. Is the crown crisis driving more people into debt?

A survey from Creditreform Wirtschaftsforschung and Boniversum, which SPIEGEL has received in advance, now helps to answer this question. The credit bureau, which also creates the debt atlas every year, surveyed 1,055 consumers ages 18 to 69 in late August. The information was compared to a 2016 study in order to track a possible development. Are you afraid of payment difficulties due to Corona? Have you deferred loan payments? And what expenses do you give up?

The result: 37 percent of households are financially worse off than before due to the crown crisis. One in five complains of economic losses of 30 to 50 percent. Eight percent of those surveyed said they had lost more than half of their income. The consequences: 28 percent fear they will soon run into financial difficulties due to the crown crisis and will have to go into debt. Eleven percent of households have deferred installment payments on current consumer, real estate or auto loans in recent months. This was legally possible until June 30. As the Creditreform figures show, the instrument was used frequently. An indication that in many households there was no longer enough money ahead and behind.

And the subjective feeling of experiencing debt stress has also increased, albeit to a small extent: if ten percent of respondents in October 2016 stated that they were more often under stress due to debt, this value was one percentage point in August 2020 uploaded. “If people were to give up some of their long-term income, we expect a sharp increase in over-indebted consumers,” says Patrik-Ludwig Hantzsch, director of economic research at Creditreform. And not only in socially weaker backgrounds, the survey also shows that over-indebtedness is increasingly affecting the middle class.

More unemployed people, more short-term workers, more over-indebted people – this is also feared by Roman Schlag of the Association’s Debt Advisory Group (AG SBV). During the lockdown period, many of the municipal debt counseling services were closed, many debtors would not have dared to leave, but first waited. Meanwhile, demand is again high, and in some regions, consultants can no longer keep up. “The use of our online consultations has only increased by 20 to 30 percent during the Corona period. This is not done simply by email, but through a protected data portal on the Internet,” explains Schlag.

The bankruptcy paradoxYannick H. now also goes to debt counseling. Regular appointments help you budget better, get along with what you have. And above all: do not incur new debts. However, that will not be enough for a comparison with creditors. Yannick H. will have to declare consumer bankruptcy: an orderly procedure in which the claims of creditors are attended to as much as possible. The debtor only has 1178 euros left, everything that exceeds this embargo limit goes to the creditors. After a certain period of time, there is no debt. New beginning. For Yannick H. it should start in October. As for many: because then a new law is likely to come into force. Consumer bankruptcy will no longer last six years, but only three years.

This leads to a statistical paradox: in the midst of the crisis, the number of consumer bankruptcies is stagnating in many federal states and is even declining significantly throughout Germany:

Less debtors? No, on the contrary. Unemployment is increasing due to Corona, and is one of the most important causes of over-indebtedness, along with divorces and serious illnesses. Entire industries are on their knees, tourism, gastronomy, the economic recession is affecting both large and small companies. And they send their people to work short-time. Or just put them in front of the door.

So it is more of a deferral effect: those facing consumer bankruptcy are now waiting for the moment when the bankruptcy period is shortened to three years. Get out of debt sooner. So the flood of applications is more likely to come after October 1, when the law is supposed to go into effect.

The shortening of the insolvency period has nothing to do with Corona, the federal government had to implement the EU requirements.

But the new regulation comes at the right time, believes debt adviser Schlag: “Shortening is definitely sensible and useful.” But he’s concerned for all the self-employed and part-time employees who are currently struggling with the fallout from the Crown. Because generally only Hartz IV and welfare recipients have a legal right to debt counseling. “Corona just showed us that more and more middle-class people are also struggling with debt, for example, when suddenly a short-time job is ordered and hundreds of euros are suddenly missing from the family budget,” says Schlag.