Debt counselling: who provides it and what happens

In Germany: who provides it and who pays for it

Debt counselling in Germany, Schuldnerberatung, is an ordinary public service rather than an emergency measure. You ring a centre in your town, you get an appointment, and you sit down with someone who sees cases like yours every week. It costs you nothing, because the centres are funded from public money and by the organisations that run them. Counsellors are bound by professional confidentiality: what you tell them does not reach your creditors and does not reach your employer. Confidentiality is not a courtesy here: without your instruction the centre writes to no creditor and hands over no document. A name, a town and one sentence about the situation are enough for the first contact. The appointment says nothing about you either. Arrears come out of illness, out of a separation, out of short-time work, out of a contract whose cost reads differently two years after the signature. Going early leaves you more options, and a centre still has options once a court order is on the table.

Recognised centres are run mostly by the welfare organisations: Caritas, Diakonie, Arbeiterwohlfahrt (the workers welfare association) and Deutsches Rotes Kreuz (the German Red Cross). Alongside them sit the Verbraucherzentralen, the consumer advice centres of the federal states, and municipal services at the town or the district council. Recognised is not a marketing word here: the status is granted by the Land, and it decides among other things whether the centre may issue the certificate an insolvency court asks for later. A recognised centre may also issue the certificate for the higher protected amounts on a Pfändungsschutzkonto, for instance where you have children or pay maintenance. Which centre is responsible for you follows from where you live. The Bundesarbeitsgemeinschaft Schuldnerberatung, the professional association for debt counselling, runs the directory of recognised centres with addresses and opening hours, and you register nowhere to use it. Next to an appointment in person there is written online counselling from the same organisations, and that is free as well.

In the United States: counselling is not settlement

The American equivalent carries a name that two very different industries both use, and telling them apart is the most useful thing on this page. A non-profit credit counselling agency reviews what you owe, works out what you can carry, and negotiates with creditors on your behalf. A first session is commonly free, and where a plan follows it there is usually a setup charge and a monthly one, which is the main difference from the German service. Many agencies belong to the National Foundation for Credit Counseling or the Financial Counseling Association of America.

Debt settlement is the other thing, and it is sold with the same vocabulary. A settlement company typically tells you to stop paying your creditors, holds your money while arrears and fees build, and then offers each creditor a fraction of the balance. It charges a share of what you owe or of what it says it saved. Some people do come out ahead. Others arrive with a damaged credit record, larger balances than they started with, and creditors who never agreed to anything. The distinction is worth checking before the first phone call rather than after it.

Non-profit credit counselling

Reviews your budget, may set up a debt management plan, negotiates while you keep paying. Fees are disclosed and a first session is often free.

Debt settlement

For profit. Usually asks you to stop paying, charges a share of the balance or of the saving, and offers creditors part of what is owed. Nothing obliges a creditor to accept.

Pre-bankruptcy counselling

A course from an agency approved under 11 U.S.C. § 111 is required before filing. The Department of Justice publishes the approved list, which is also the cleanest way to check that an agency is real.

Counselling, settlement, consolidation and repair, CFPBThe regulator setting out what separates four things that get sold under similar names. Worth reading before agreeing to anything that charges a share of what you owe.

Approved credit counselling agencies, US Trustee ProgramThe Department of Justice list of agencies approved to give the counselling required before a bankruptcy filing, by state. Useful as a check on whether an agency is what it claims to be.

What an app cannot do

This page belongs to an app that projects loans and instalments, so the sentence goes here at the top rather than into the small print: the app answers how long a plan takes. It does not negotiate. It does not ring a collection agency, it does not get a claim checked, it does not stop an enforcement action, and it cannot make a total smaller than your income can carry. It does not check whether a claim is time-barred, and it does not object to a Mahnbescheid while the deadline for that is running. What it can do is the order and the date: which item deserves the next spare dollar, and when the last of them is done. While every payment is being made, that is exactly the information nothing else gives you. Once the payments together come to more than what is left after your fixed costs, the question has stopped being arithmetic and turned into a negotiation. A counselling centre writes to your creditors, checks each claim, and sets up a payment plan you can keep. No software does that work for you, and we do not claim otherwise.

The signs that it is time

• The monthly payments together are higher than what is left after rent and the other fixed costs. The money is then missing in every month, not in one.
• A new loan is running in order to service an old one. Refinancing can be cheaper, but if the new payment only replaces the old one while the total grows, it is an extension rather than a way out.
• Letters stay unopened. That is an understandable reaction, and it still costs money, because deadlines keep running while the envelope is shut. In counselling that pile is where the work starts, and nobody there holds it against you.
• The account has been attached, or a Kontopfändung (attachment of a bank account) has been announced. From here the subject is the Pfändungsschutzkonto, the protected current account, and switching to one follows rules nobody carries in their head.
• A Mahnbescheid, a Vollstreckungsbescheid or another enforcement title is on the table. The deadlines for objecting to those are short, and an objection has to be filed within the period printed on the notice itself.

The first appointment: what happens and what to take

The overview

Income, fixed costs and every single claim go onto one sheet, with the creditor, the amount and where the case stands.

Checking the claims

Is the claim owed at all, is it calculated correctly, are the fees and the default interest allowed at that level, is it time-barred.

Contact with the creditors

The centre writes to your creditors and negotiates a Ratenplan, a schedule of instalments, or a settlement covering part of the claim.

Verbraucherinsolvenzverfahren

Consumer insolvency proceedings, for the case where no plan fits your income. The route runs through the insolvency court, and a recognised centre issues the certificate about the failed out-of-court attempt that the court requires.

• The letters from creditors and collection agencies from recent months, including the unopened ones. They carry the amounts, the deadlines and the reference number the centre needs to ask about the case.
• Loan and instalment agreements, together with the pre-contractual information that states the annual percentage rate. Where an agreement has gone missing, note the creditor and the contract number, and the centre can request the documents.
• The last few bank statements, so that the standing payments are all visible and no instalment is forgotten.
• Proof of income: recent payslips, the decision on Arbeitslosengeld or Bürgergeld (unemployment benefit or basic income support), a pension statement, a housing benefit decision.
• A list of your fixed costs: rent and service charges, electricity, insurance, subscriptions, maintenance payments. A recent bank statement is enough to build it from.

If some of that is missing, go anyway. A first appointment often does nothing more than build the overview, and what is missing can come to the second one. Sitting there with an incomplete pile helps more than postponing until the pile is complete, because the deadlines carry on in the meantime. Waiting times exist and they differ by region: in one town an appointment comes quickly, in another it takes a while. Ask two things when you register. Whether the centre keeps short-notice appointments for urgent cases, such as an attachment or a notice to quit. And whether you can use the online counselling until then, because the written services are there for this as well. An answer there does not replace a negotiation with several creditors, but it does tell you what comes first. If a creditor writes to you before the appointment, note the date on the letter, because the counselling works with exactly that sequence later on.

Find a counselling centre, BAG-SBThe Bundesarbeitsgemeinschaft Schuldnerberatung, the professional association, runs the directory of recognised centres in Germany. Advice there is free of charge.

Online debt counselling, CaritasFree and anonymous, with no trip to an office. You describe your situation in writing and trained counsellors answer in writing.