A. Introduction

The new Insolvency Statute (Insolvenzordnung – InsO), which came into force on 1 January 1999, sets a discharge of residual debts (Restschuldbefreiung), sections 286 – 303 InsO. When the debtor is a natural person, he or she can request the discharge on the basis of two different insolvency proceedings: either in accordance with the regular insolvency proceedings or in accordance with the consumer insolvency proceedings. The discharge of residual debts has both a social and an economic function. On the one hand, it serves as personal protection for the debtor, especially his rights of privacy and dignity (allgemeines Persönlichkeitsrecht); it will give debtors a new perspective. On the other hand, the provisions intend to (re)integrate debtors into economic life, thereby avoiding illegal employment.

Sections 286-303 InsO are the result of an intensive reform discussion. Since the  discharge of residual debts was previously unknown under German law, reform efforts are not yet complete. Quite the contrary, six years later it seems as though both proceedings take a new turn; today,  they are again under consideration and there is a very serious discussion about their continuing into the future. In fact, fundamental modifications are to be expected. This is why the following presents the current developments of the consumer insolvency proceedings and the discharge of residual debts.

B. Empirical Development

In the first years after the commencement of the Insolvency Statute the number of debtors submitting consumer insolvency proceedings was not as high as expected. Although in 1999 in Germany there existed 2.77 million over-indebted households, only 1,634 debtors successfully initiated consumer insolvency proceedings. The reason for such a small number of proceedings was found in the insolvency law itself. Insolvency proceedings will only execute when the assets of the debtor exceed the costs – otherwise the court must dismiss the initiation request according to section 26 (1) InsO. However, most consumers cannot cover these costs, even with the aid of their families and friends.

Usually, such...