Federal Council proposes debt relief for indebted people

Today Tito Ries has debts of 330,000 francs. He first fell into debt in 1996 when his recruitment company went bankrupt due to losses on accounts receivable. Ries was still able to pay the employees’ wages, but not the social benefits. As managing director, he was liable: “The company’s debts – 250,000 francs – were transferred to me,” says Ries during a visit to his apartment in Basel.

Ries tried to repay his debts. He had various jobs as a general contractor and insurance broker, sometimes working temporarily. But like everyone who operates in Switzerland, Ries had to hand over all income above the “subsistence minimum” to the creditors.

Those affected end up in a debt spiral

Tito Ries is not an isolated case. As of May last year, they were nationwide More than 400,000 people are in debt. 51 percent of those affected have been in debt for more than six years, 26 percent for more than ten years. The shows statistics from debt advice Switzerland, the umbrella organization of non-profit specialist centers for debt advice.

Those who only have the subsistence minimum as a basis of life often end up going further into debt, for example in order to be able to pay taxes or health insurance premiums. Many of those affected develop health problems: people who are over-indebted have been proven to suffer more likely to suffer from depression and chronic illnesses.

Tito Ries’ situation also worsened when his wife separated from him in 2001. Maintenance payments were added to his debts and he was not allowed to see his children for eight months. Ries became lonely, suffered from depression, and slipped into alcohol addiction at the age of 40. He became homeless and, as he himself says, violent “when he was drunk”. He had to go to prison twice. His mountain of debt grew with the legal costs and tax assessments: “It’s a vicious circle,” says Ries.

Debt repayment in Switzerland too?

To prevent debt spirals, many countries have a residual debt discharge procedure. This means: After a period of time, all remaining debts will be repaid. The possibility of debt repayment is now also to be introduced in Switzerland. On Wednesday morning, the Federal Council discussed a change to the Federal Law on Debt Collection and Bankruptcy (SchKG).

The Federal Council wants to introduce a restructuring procedure for over-indebted private individuals. After a period of three years, the remaining debts would expire. Before that, the debtors would have to strive for a regular income as before and hand over all income above the subsistence level to the creditors.

Debt advice Switzerland has been campaigning for the introduction of a restructuring procedure for years. “Many people who are in debt live in a prison,” says Pascal Pfister, managing director of Debt Advice Switzerland: “Just the prospect of debt repayment could improve their health.” Evaluations of restructuring procedures in Germany and Austria confirm Pfister’s assessment.

Probate and personal bankruptcy are often not options

Private debtors already have the opportunity to agree with their creditors to cancel their debts: This is called a probate procedure – and this is also intended to be simplified as part of the current change in the law. But an estate requires a majority of creditors, and this rarely comes about.

For Tito Ries, probate proceedings were also not an option: he found this out when he sought help from debt advice in Basel in 1998. He also couldn’t file for personal bankruptcy because he would have had to have been employed for several years beforehand.

Ries considers the current debt collection law to be “inhumane”. It doesn’t surprise him when those affected give up: he himself also gave up trying to change anything about his situation at times. That was certainly also due to the destructive environment “on the street,” says Ries, but: “You have to give people a perspective.”

The state benefits from a haircut

The new debt repayment should Allow those affected to restart: “Over-indebted individuals deserve a second chance,” said the responsible Federal Councilor Beat Jans at the media conference this afternoon. And: The prospect of improvement should increase the work motivation of those affected whose wages are garnished.

According to the Federal Council, the public sector would too benefit from the introduction of a restructuring process. Due to outstanding tax claims and because the cantons bear the costs of unpaid health insurance premiums, the state is the main creditor for many indebted people. Thanks to the restructuring process, cantons and municipalities no longer have to write off outstanding tax claims, but those affected could pay their tax and health insurance bills regularly again in the longer term.

The debt spiral can cause additional costs because 60 percent of all people are in debt receive social assistance. So does Tito Ries. According to the state’s own statements, it cost the state around two million francs over the last 25 years. “The hole was initially 250,000 francs, today it is two million,” said Ries: “But the hole has shifted from me to the state.”

In this way, even middle-class politicians could be convinced that the introduction of a mechanism for residual debt relief made sense, says Pascal Pfister from the debt advisory service. In the consultation process, only the SVP fundamentally rejected the draft law.

Debt collection Suisse is defending itself against the restructuring process

In addition to the People’s Party, the Inkasso Suisse association is one of the few opponents of the reform: “Such a restructuring process is entirely at the expense of the creditors,” says Raoul Egeli, Vice President of Inkasso Suisse.

The creditors could not influence the restructuring process. For Egeli this means: They would be forced to give up their demands. The Debt Collection Suisse Association even speaks of expropriation of creditors.

Egeli calls for a clearer distinction between indebted and over-indebted people. A restructuring process should only benefit “NINAs”: the technical term from the debt collection industry stands for “no income, no assets”. “NINAs” are those people who have no income above subsistence income – and therefore cannot “offer” their creditors a repayment rate, as it is called in technical jargon.

High bad debts for creditors

But the Federal Council has set hurdles that are too deep in the draft law: “So anyone who has payment problems could access such a restructuring procedure,” says Raoul Egeli. The loss of receivables for the creditors would be high: Debt Collection Suisse expects losses of more than 62 million francs if the residual debt is discharged after four years, and now the deadline is supposed to be even a year shorter.

Pascal Pfister from Debt Advice Switzerland, on the other hand, believes that the three-year recovery period is long enough: “If there is something to be gained, the creditors will also receive something.” In many cases it is already the case that creditors have little prospect of repayment of their claims.

The Federal Council’s proposed law is now coming to parliament. If it passes, local debt collection agencies will have to implement the changes. It will be a few years before the new process comes into use.

Tito Ries now lives on the just over 1,000 francs that social welfare pays him per month, as well as around 250 francs in additional income from his work at “Surprise”. He has come to terms with his situation.

For the next generation, Ries hopes that the restructuring process will be implemented in the new law. “A residual debt discharge procedure would have solved all of my problems,” said Ries: “It would be a relief for those affected.”

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