More people with chronic debt problems are having their debts written off following a change to the rules – but both creditors and debt support organisations are critical of the new system.

The guidelines for calculating repayments were changed on July 1 to include a baseline figure reflecting essential living costs. If a debtor’s income is below this level their repayments are set at zero.

If the creditor refuses to accept the terms, debt advisors can ask a court to cancel the debt on the grounds that the debtor has no capacity to repay it. Several judgments to this effect have been issued since July.

Around 35% of debtors have had their liability reduced to zero since the new rules came in in July, according to an analysis by debt support association NVVK. Municipalities are legally obliged to arrange support for people who are unable to pay off their debts within three years.

Under the old rules debtors were required to spend at least 5% of their income on repaying debts, regardless of how little they earned. But debt support agencies say that plunged debtors into an endless spiral that undermined their well-being.

“The message is basically: you don’t have to pay because you can’t pay, having regard to your income level. I think that sends out the wrong signal,” debt expert André Moerman told NOS.

Social minimum

The NVVK has called on the cabinet to raise the social minimum income from work or benefits so that more people have the means to pay off their debts. It points out that 16% of people who have no ability to repay are working but only earn enough to cover their living costs.

“At the moment creditors are paying for the lack of basic income security that we see with people who need financial support,” a spokesman said.

Moerman said the government should reform the system of debt collection to limit the interest and penalties that creditors can impose, which can significantly add to the debt burden.

Insurers have also raised concerns that the new system leads to people having their debts written off without addressing the underlying problems that caused them, putting them at risk of sinking back into debt.

Research has showed that just 15,000 out of 730,000 households registered as having chronic debts were lifted out of debt with financial support last year.

“We see that 12% of customers fall behind on their payments again within a few months of having their debts cancelled,” Jeroen van Werken, debt manager at Achmea told NOS. The insurer says debt relief should be combined with mandatory financial support to reduce the risk of chronic debt in future.

A study for the Dutch government this year found that dealing with chronic debt costs society €8.5 billion a year in government and legal costs, as well as the impact caused by health problems and absence from work related to financial stress.