The Innovative German Approach to Consumer Debt Relief: Revolutionary Changes in German Law, and Surprising Lessons for the U.S.

Abstract:     
To add another enlightening dimension to current U.S. consumer bankruptcy reform debate, this Article describes the consumer provisions of the new German Insolvency Act. It reports on Germany's rising consumer debt problem and the various ways in which German debtor-creditor law failed to address this increasing problem before 1999. It then examines the consumer provisions of the new German Insolvency Act, in force since January 1999 and significantly amended in December 2001. It reveals critical distinctions between the theory of consumer insolvency, as described in German law and legal literature, and the reality of consumer insolvency in practice as it has developed in the nearly five years since the law went into effect. From this examination, this Article extracts several lessons for U.S. law reformers battling with provisions quite similar to those implemented in the new German law. As it turns out, the German and U.S. consumer debt relief systems produce largely the same economic results. Important distinctions between the German and U.S. economic and social systems suggest, however, that the German approach - and the amendments currently under consideration in the U.S. Congress - would not lead to success in the U.S. At the same time, the German system focuses on achieving important societal goals that U.S. law neglects, which might be incorporated into U.S. law through more careful reform of U.S. debtor-creditor law.

Keywords: Consumer bankruptcy, consumer insolvency, consumer debt, overindebtedness, German legislative process

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