The price of the pandemic: Free debt advice is in demand like never before

The price of the pandemic
Free debt advice is in demand like never before

More and more people are looking for advice to get out of the debt trap. Demand has increased “drastically” due to the Corona crisis. It was a “real run,” reports the head of a counseling center for workers’ welfare. There is no end in sight to the onslaught.

The account balance is in the red and there is no end to the red figures in sight – anyone who sits in Thomas Bode’s office is usually in a crisis and is looking for help. The head of the debt counseling service for Arbeiterwohlfahrt (AWO) in Göttingen has been in the job for 15 years. The applications on his desk show the fates of people who have lost a lot as a result of the pandemic. That was not always so.

“It took a while, but now you can see the effects of the pandemic on our advice seekers,” says Bode. Demand has changed “drastically” since April last year: “Some colleagues are talking about a real run.”

Debt counseling services across the country are reporting increased demand. The Paritätischer Wohlfahrtsverband in Oldenburg-Ammerland says that demand was around 30 percent higher last year than in 2020. According to the Lower Saxony Diakonie, the 54 social debt advice centers run by the Diakonie have also registered a greater need for advice. People who have gotten into financial difficulties due to long short-time work or the loss of minor jobs are particularly affected.

Pandemic drives numbers up

“Due to the pandemic, people suddenly had to seek help from the social debt counseling centers for whom this was not an issue at all before the pandemic,” says Sven Quittkat, spokesman for the Lower Saxony Diakonie. Many people only come long after they are over-indebted. Therefore, an increase in demand is to be expected.

The credit agency Crifbürgel, for example, assumed last October that the number of private bankruptcies in Germany would climb to 120,000 in 2021 – which was the first increase in ten years. The Lower Saxony Ministry of Justice refers to the development of applications for consumer and small insolvency proceedings: While around 7,500 applications were made in 2020, there were over 11,100 last year.

Experts also attribute the sharp increase compared to 2020 to the fact that many of those affected would have waited for a legal reform. The reform of consumer insolvency law enables private individuals to be discharged from residual debt more quickly. Since the beginning of 2021, there had therefore been a run on district courts. However, experts also pointed out that the consequences of the corona pandemic have been increasingly noticeable since the middle of last year.

Personal bankruptcy “is normal”

Basically, there are different ways to deal with debt, according to Bode: living with the debt, agreeing settlements or starting insolvency proceedings. About 20 to 30 percent of those seeking advice chose the path of personal bankruptcy: “That’s normal.”

But not only the pandemic itself is often a trigger for higher debt. According to the Lower Saxony Statistical Office, people sought advice in 2020 mainly because they were unemployed, ill or addicted or had an accident. Separation, divorce or death of the partner are other reasons.

“So much has to do with money in our society. And everything that has to do with money can be a potential concern for those seeking advice,” says Bode. Account seizures, rent debts or debts to the health insurance company made up a large part of the advice.

The Federal Working Group for Debt Counseling (BAG-SB) advises those affected to seek help quickly. “Because debt counseling not only helps with the opening of insolvency, but usually the better the earlier the advice is used,” says Ines Moers from the BAG-SB. According to her, you should take advantage of the offers, especially if it doesn’t cost anything.

“It can happen to anyone”

According to Bode, it currently depends on the municipalities, the federal state and the organizations offering it, whether social debt counseling is free. Bode demands that everyone should have the right to free debt advice. “The pandemic in particular has shown that it can affect anyone. But not everyone has access to advice,” says the 45-year-old.

According to the State Statistical Office, around 84,000 people took advantage of debt counseling in 2020. Almost half of those seeking advice were unemployed. There were a total of 264 debt counseling centers nationwide, plus other options such as advice from lawyers. The total figures for 2021 are not yet available in Lower Saxony.

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