In future, people in arrears in Switzerland will be given a chance to become debt-free, under new plans unveiled by the Federal Council. It is hoped that the reforms will provide relief to those who are trapped in a cycle of debt proceedings and repayments.

40 percent of the Swiss population has some form of debt

In a statement, the Federal Council conceded that Switzerland is one of the few European nations that does not provide a way for highly indebted people to restructure their finances to become completely debt-free. “Natural persons who cannot free themselves from their debts on their own have little prospect of ever living debt-free again. Often they only have the minimum subsistence level required by debt collection law,” they noted.

The government added that not only does being in debt have a profound impact on the health and mental wellness of the indebted person and those around them, but it also impacts social security and the economy as those in debt enforcement proceedings are typically unable to pay taxes.

According to its data, 6 percent of the population have had at least one debt enforcement proceeding brought against them, while 40 percent of the Swiss population had debts of some kind in 2022. Therefore, the Federal Council wants to change the law “in order to give over-indebted people a second chance at a debt-free life in the future.”

How is Switzerland planning to reform debt enforcement proceedings?

The first change concerns how agreements are reached in insolvency proceedings - an agreement that typically involves waiving part of the debt or extending the due date for future payments. In the future, a simple majority of the debtor's creditors would have to agree to such a settlement in order for it to be approved, rather than a qualified majority based on the nature of the case. The decision would also be binding for creditors who did not agree to the package.

In cases where people are “hopelessly in debt and for whom no insolvency agreement can be concluded", the Federal Council would provide a new streamlined bankruptcy procedure. In this case, debtors would hand over all available funds to creditors for three years, while also taking steps to earn a regular salary. Once this period concludes and all requirements are met, all remaining debt will be forgiven.

The reforms would also grant protections to those who recently completed their debt proceedings. No further action could be imposed on the debtor for 10 years, though creditors would still receive payment should the debtor suddenly acquire assets via inheritance or a gift.

Finally, the law would require Swiss cantons to guarantee access to debt and budget advisors throughout the process.

Reforms promise a way out for heavily indebted people in Switzerland

“The possibility of being able to live debt-free again one day provides debtors with an incentive to recover quickly economically. It can also prevent indebted people from becoming permanently dependent on social welfare,” the Federal Council argued. These measures will now be debated in parliament.