5 effective ways to pay off your debt
While around 13% of Swiss people have already been refused a loan, in 2019 almost 561,000 people in Switzerland have excess debt, i.e. 119,000 more people than in 2016. The largest number of debtors is in French-speaking Switzerland, with 10.9% in Neuchâtel and 10.4% in Geneva. The most common are tax-related debts, which concern 80% of debt cases.
Most often, the origin of debt can be found due to personal problems, such as redundancy, divorce or illness. Moreover, younger people are the most impacted. Indeed, 80% of people who have excess debt started having debts before they were 25. While in the 18-25 age group, men and women are equal in terms of debt, in the 36-40 age group, more men have debts.
Here are some tips on how to take control of your financial situation in a situation that can happen to anyone.
1. Debts, where to start?
To calculate the extent of the debts and begin setting up a solution to get out of this vicious circle, the first thing to do is to face up to the situation, which is not always easy.
Very often, people in debt feel very ashamed and hesitate to talk about it. It’s a mistake! Very often, talking about it with people you can trust will help regain self-confidence and the process of debt repayment can begin. The best thing to do is to go to a cantonal advisory body which will help draw up a list of creditors, but above all draw up a serious and realistic budget at a relatively low cost.
Get professional help
To set up a debt repayment plan, also called a debt restructuring plan, the debtor must carefully list every debt with the help of their counsellor if they have one. This plan, which is usually for 36 months, takes into account the person’s financial situation, but not only that. Their personal situation, their ability to cater to their everyday needs and taxes without creating new debts, and their state of health are also taken into account.
There are many advantages to working with a counsellor. Firstly, the debt is managed by the counsellor and not the debtor, who can concentrate on the essentials and receive sound advice to improve their life and take control of their budget management. Secondly, counsellors are in a much better position to negotiate creditors because they have the necessary knowledge. Knowing that more than 80% of those in debt have tax debts, it is the Tax Office that makes the decision and there the negotiations are tougher.
Optimise your budget
Having debts has many consequences on debtors’ lives, because they need learn to live differently. Why? To spend less and focus first on the everyday necessities such as rent and related costs, food, mandatory insurance, medical expenses, transport to work, alimony if applicable, and taxes. Counsellors analyse monthly expenses and look at whether an insurance premium can be eliminated or modified for those that are not mandatory, or whether a lease-hire or loan can be bought back.
2. Eliminating debt: the main strategies
1. Payment terms
Debtors whose debts are not very high.
- Repayment must be completed within a maximum of 36 months.
- The counsellor or the debtor may negotiate terms in which the creditors waive the interest.
- They must always be paid on time, according to a precise repayment schedule.
2. Partial debt forgiveness
Also known as an extra-judicial or judicial agreement with remission (LP art.333 and SS), this strategy is designed for debtors who have the means, but whose debts are too high to be repaid in 3 years.
- Request a suspension from creditors and propose a repayment plan spread over a maximum of 36 months.
- Propose the maximum possible amount and negotiate with creditors who then accept this amount and settle the debts.
3. Debt payment plan
Also known as an extra-judicial agreement without remission, this strategy is suitable for debtors who have the means to repay their debts in 3 years. All creditors should always be treated equally and all should be repaid at the same time.
- Prepare an payment instalment plan and notify all creditors so they know when they will receive their money.
4. Private Bankruptcy
Debtors whose debts exceed their income and when an agreement with their creditors is impossible. They have the right to apply for personal bankruptcy under Article 191 of the Federal debt collection and bankruptcy act (LP). The procedure takes the debtor before a judge who will then make the decision.
Procedure for recognition of personal bankruptcy:
The debtor must compile a file proving that they can no longer pay by adding a complete debt history and a complete budget setting out, amongst other things, the amounts of the debts. They must also prove that no agreements with creditors have been reached, that they can live after the bankruptcy without creating new debts, that they can pay current taxes and that they have sufficient funds to pay the costs of the proceedings. If the debts are for a couple, each person must follow the procedure for themselves.
Important consequences for the debtor:
- The legal costs related to this procedure amount to approximately 4,000.
- As soon as the bankruptcy is pronounced by the court, attachment of earnings orders ceases.
- The debtor is registered with the ZEK, the credit information system (link to https://www.credit-conseil.ch/blog/3-consequences-un-refus-de-credit/), resulting in the impossibility of obtaining loans.
- Valuable assets can be seized by the Bankruptcy Department.
- Default notices with creditors are valid 20 years. They can then issue a new order to pay at all times. Note that debtors may oppose the order to pay if their resources have not improved in the meantime.
- The Official Gazette publishes the bankruptcy in its newspaper.
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