Foreign residents in Germany may be surprised to learn how easily their bank accounts can be frozen for unpaid debts. If you miss a bill, and a few reminders to pay, in the mail, your German bank account can be slapped with a garnishment.
That said, the severity of punishments for not quickly repaying debts are also very often exaggerated: No, you wont be jailed for not immediately paying a €200 bill, for instance.
If you let an unpaid debt linger you can expect escalating consequences, from reminders to pay to harshly worded threats of legal action, and even efforts to seize your property. But you do have legal rights and there are limits to what creditors can do to reclaim unpaid debt.
The most important thing to know is that in most cases, at any stage in the process, you will likely be able to make any legal issues go away by repaying the debt or agreeing a payment plan with your creditor.
It starts with payment reminders
If you are behind on making scheduled payments or paying a fine, you can expect that the creditor you owe money to will send reminders to pay as the deadline approaches.
If you have not paid by the time of the deadline, you can expect further reminders, and in many cases also added late fees.
The total you owe will therefore be higher the more you are behind on repayments.
Next comes proceedings to seize your assets
For smaller sums, the creditor may decide to initiate a streamlined Mahnverfahren (or dunning) process to seize some of your assets in order to repay the debt.
You’ll receive a formal payment order from the court. You should read the paperwork carefully. If any aspect of the claim is incorrect, or if you don’t know why a claim is being made against you, you can file an objection within two weeks.
If you do not object, the court may issue an enforcement order (Vollstreckungsbescheid), empowering a bailiff to seize your assets to compensate the creditor.
If you do object, the creditor may bring a legal case against you to pursue the claim. In many cases this will come as a freeze on funds in your German bank account.
It’s important to only object if you have a legitimate objection. Objecting frivolously can increase costs for you further down the line if you lose in court.
READ ALSO: Could personal debt stop you from getting German citizenship?
In Germany your assets can be seized, but with limits
Once an enforcement order has been issued, creditors may withhold part of your wages, seize valuable property, or request a formal declaration of your assets.
There are, however, limits to what can be seized.
You must be left with essentials – such as food, medical supplies, and items required for education or work – and the cost of seizing the items must be less than their value. Because of this, bailiffs will often target valuable assets, such as property, jewellery and savings accounts.
Non-monetary items would then be sold at auction.
It is important to cooperate with proceedings at this stage. Failing to do so risks arrest for obstructing enforcement.
What about larger sums?
Larger debts – in the thousands of euros – are usually pursued through a formal legal process rather than the simplified Mahnverfahren.
In this case, the creditor would file a civil case against you. If the court finds against you, it issues an enforcement order allowing the creditor to proceed with debt collection.
You may be liable for legal fees, which can add significantly to the money you owe.
Can you go to prison for unpaid debt?
Creditors will sometimes threaten you with prison sentences in letters reminding you to pay. In most cases, this is an empty threat designed to frighten you into paying.
However, there are some circumstances in which you could end up in jail. These include refusing to pay a fine resulting from a criminal conviction, refusing to submit a declaration of assets, or having entered into debt with the clear intention of not repaying it.
Put simply, being jailed for debt in Germany is generally reserved for cases where someone refuses to pay despite having the means to do so, and being warned multiple times.
In most cases, cooperating with the bailiffs and authorities and paying what you owe will mean avoiding jail.
What could be the other consequences of not paying my debt?
The fact that you have unpaid debt may be visible to banks and credit agencies such as Schufa. Meaning your credit score will likely be affected.
READ ALSO: Everything you need to know about Germany's 'Schufa' credit score
Enforcement actions will be listed in a publicly accessible register, though in practice this is rarely consulted.
Your employer cannot fire you for being in debt. But they will find out if part of your wages are being withheld, as they will be responsible for paying the creditors.
You can only lose your rented flat if you are in debt to the landlord and behind on at least two months’ rent (for example, you owe €1,100 and your rent is €500), or if you have underpaid rent for two consecutive months by more than a month’s rent (for example, your rent is €500 but you have only paid €400 over the last two months).
If you own property, that may be seized by the bailiff and you may be evicted in the case of larger debts.
How should I deal with unpaid debt?
Being in debt can lead to serious consequences, but the legal system is designed to protect your basic rights.
If possible, consider setting up a repayment plan which would allow you to repay a debt over the course of months or years.
If you’re overwhelmed, free debt counselling services offered by local charities and municipalities can help you manage the process.
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