Consumer Insolvency: The Linkage Between the Fresh Start, Collective Proceedings, and the Access to Debt Adjustment

Abstract

The term “fresh start” is widely used. This article asks how fresh the start needs to be in order to offer real rehabilitation to the debtor. A fresh start where the debtor does not restore the control of his or her economic situation has not achieved the objective of debt adjustment. Sometimes, however, the poor economic situation of the debtor after debt adjustment is not a sign of unsuccessful insolvency legislation but a consequence of more general social policy problems in society. In this paper, the hypothesis is set that the fresh start requires quite extensive and simultaneous discharge of debts in collective proceedings. The collectivity of the proceedings is the procedural side of the coverage of the debts. A high coverage of debts means usually a strict entry control by the court as a gatekeeper. The court investigates the reasons behind the indebtedness. The downside of strict control is the drastic sorting out of the debtors. A relatively open assess to debt adjustment is possible in systems where plenty of debts have been excluded from debt adjustment by the legislator (protected debts). The weak point of these systems is that the fresh start is not achieved because the debtor has not enough disposable income to pay the protected debts. In this paper, a debt adjustment model is suggested that has high coverage of debts where rescheduling is used as a means of debt arrangement concerning the protected debts.