What that means – and who it affects

Schufa deletes residual debt relief after six months: what that means – and who it affects

The credit agency Schufa has announced that it will delete the remaining debt exemption from its documents after six months after a private bankruptcy. So far, this has only happened after three years. What changes now.

Whether they are in debt or not, when people get into financial problems, the way out in some cases can be personal insolvency proceedings. Anyone who opens a private bankruptcy no longer has any debts after three years and can start a new life economically – without severe financial constraints. At least in theory.

For years, consumer advocates have been calling for more transparency and a better data protection from Schufa. One of the biggest points of criticism so far has been that the credit agency stores entries on private bankruptcies for too long. After the three years that a private bankruptcy lasts, the debtor is freed from all remaining debts, but the private bankruptcy remained noted by the Schufa for another three years. This used to be permissible, but since May 2018 a new data protection law has been in force throughout Europe.

Schufa wants to create “clarity and security”.

The case ended up before the European Court of Justice (ECJ) – triggered by a plaintiff who was confronted with considerable financial disadvantages due to the storage of the private bankruptcy. In detail, he announced that he could not rent an apartment, open an account or take out a loan – despite successfully completing insolvency. But before the ECJ could make a decision, Schufa decided to reduce the storage period for entries on completed private bankruptcies to six months. Until then, the information can also be viewed publicly on the official internet portal insolvenzanzeigeen.de.

According to their own statements, the Schufa wants to use it “Clarity and security” and “a quick economic restart” create for consumers. “The fact that Schufa stores the entries for so long has actually triggered discussions for years,” says Daniel Bergner, Managing Director of the Association of Insolvency Administrators and Administrators in Germany (VID). The Association of Insolvency Administrators therefore welcomes Schufa’s decision.

Start over after a personal bankruptcy

The shortening of the storage period after private bankruptcies affects around 100,000 people every year, Bergner knows. “Even if there are certainly more people in Germany who have financial problems, very few of them file for bankruptcy.” The shortening also affects everyone who has previously consulted Schufa entries for decisions – such as landlords or lenders and lenders.

After a personal bankruptcy, consumers should actually be able to start over. This was hardly possible due to the long storage of the Schufa. “The fact that Schufa stored the data on private bankruptcies for so long has prevented many contracts from being concluded,” says Bergner. The remaining debt exempt would not have had a clean slate. According to Bergner, lenders in particular are more cautious when they see from the Schufa data that someone has gone through bankruptcy. “The Schufa entries could then be a major obstacle.”

Offer financial advice at school

With the new regulation, those who are exempt from residual debt can rent a new apartment or take out a loan more quickly. “The reduction in the storage period is an overall improvement in the situation for debtors,” says Bergner.

But there is also potential for criticism of the shorter storage period. According to Bergner, the question for many in practice is whether the Schufa decision will have an impact on the granting of credit. “Instalment banks in particular are very critical of these developments and fear that they will create the wrong incentives,” says Bergner. People could now get into debt more quickly again. Bergner points out that no financial advice is associated with the discharge of residual debt and the shortening of the storage period. Because of this, some people got back into debt even after bankruptcy. “Politicians have been thinking for a long time about whether such financial advice would make sense – in my opinion, it should be offered in schools,” says Bergner.

Schufa is criticized for its score

According to the Schufa, all entries for a residual debt exemption that have been stored for more than six months as of March 28, 2023 and all information on associated debts will be deleted after six months retrospectively to this date. According to the information, consumers do not have to worry about this because this process runs automatically.

The Schufa is not only criticized because of the long storage period of data. The Schufa score is also repeatedly criticized. This should indicate how likely it is that a debtor will repay his or her debts. “This value is calculated from a lot of different data – but the Schufa does not communicate the calculation formula transparently and is also criticized for it,” says Bergner. According to an opinion of the European Court of Justice, the Schufa violates applicable EU law with its scoring. A judgment is only expected in a few months.