How long does a personal bankruptcy last?

The most important things at a glance:

In summary:

  • Maximum duration of insolvency proceedings 6 years
  • Reduction to 5 or 3 years possible
  • The duration of the out-of-court settlement is not specified
  • The conduct of business phase applies during the entire duration of the procedure
  • After the end of the procedure, the debt relief comes into effect, after which the debtor is released from all remaining debts by the bankruptcy court

Millions of people are in debt. Economic crises such as the corona pandemic, private circumstances such as strokes of fate or a sudden job loss can be the cause of bankruptcy. In this article you will find the most important information on the length of insolvency proceedings so far and what changes you can expect from October as part of a new draft law. Basically, private bankruptcy offers debtors the opportunity to reduce their debts with the help of a multi-stage bankruptcy procedure and to repay the creditors their money in order to get closer to your complete liquidation.

What happens before bankruptcy proceedings are opened?

Before registering private insolvency proceedings with the local court, the debtor is obliged to try to reach an out-of-court settlement attempt with the creditors. If there is no out-of-court settlement between the debtor and the creditor, the application for personal bankruptcy is submitted to the local court. In addition, all financial circumstances such as assets and income are disclosed in the form of certificates before the local court. 

According to Section 304, Paragraph 1 of the InsO, dependent persons can file for personal bankruptcy or, according to Section 304, Paragraph 2 of the InsO, formerly self-employed persons without liabilities to previous employees and no more than 20 creditors.

You can submit the insolvency application to the competent bankruptcy court. You definitely need a certificate of the unsuccessful settlement with your creditors.

How long does an out of court settlement take?

Since there is no legal process for an out-of-court debt settlement plan, it is not possible to precisely determine the time span. It depends (if the advice of a lawyer is included) on the processing time of the law firm, as well as on the reaction time of the individual creditors. It can also happen that the first proposal of the debt settlement plan is rejected and a new revision is necessary.

If an agreement is reached on a one-off payment, the out-of-court settlement can be concluded after just a few months. In the case of installment payments, the payments extend over a longer period of time, which is agreed with the creditors depending on the amount and frequency of the payment.

In most cases, debtors and creditors can agree on an insolvency plan and the outstanding claims can be settled without an ongoing bankruptcy process.

How long does the actual personal bankruptcy currently last?

After the bankruptcy petition has been filed, the competent bankruptcy court usually needs 5 to 6 weeks to actually open bankruptcy and the actual bankruptcy proceedings. The insolvency court then appoints an insolvency administrator who realizes the attachable assets.

It can take a maximum of six years from the opening of insolvency to the discharge of residual debt.

However, it is possible to shorten the duration of the proceedings according to the insolvency law that came into force in July 2014 (§ 300 InsO):

  • Reduction to 5 years: If the entire procedural costs can be paid in accordance with Section 54 InsO (costs for court and insolvency administrator), the duration of the procedure can be reduced to 5 years. The procedural costs do not normally amount to more than 2,000 euros, so around 35 euros per month would have to be paid within the 5 remaining years to cover the costs.
  • Reduction to 3 years: In the case of a reduction to 3 years, the entire procedural costs plus 35% of the total debt must be paid.

When does the conduct of business phase end?

The conduct of business phase begins with the opening of insolvency proceedings and ends with them. During this time, the debtor must adhere to certain rules and “behave well” in order to show his good will to want to settle his debts. At the end of the conduct of business phase, the residual debt comes into force.

What innovations in the process of personal bankruptcy can be expected from October 2020?

A few months ago a new law was published to shorten the residual debt discharge procedure. This provides for a shortening of each procedure to 3 years, which was requested after October 1, 2020.

Further plans are:

  • Procedures that were applied for before December 16, 2019 will continue to last 6 years
  • All procedures applied for between December 16, 2019 and September 30, 2020 will be shortened in stages
  • When it comes to classification, the application for bankruptcy counts, not the opening!

In the course of the planned change in the law, the debtor should therefore consider whether to wait a few weeks before filing an application for bankruptcy until the law is finally confirmed.

What are the advantages and disadvantages of personal bankruptcy?

In addition to the financial burden on the creditor, personal bankruptcy is a good way to get back to normal. You also have a significant relief from a psychological point of view, as you no longer feel the pressure on the creditor to execute the payment on time and no longer feel fear of the bailiff. This relief is also required for the partner or family, who usually suffer too. With the initiation of insolvency proceedings, your debt relief towards the creditor begins. Once insolvency proceedings have been initiated, you have seizure protection and your account must be converted into a P-account. Now creditors are forbidden to carry out a foreclosure and you no longer have any attachable amount in your account.
Disadvantages include the fact that you cannot keep the fact that you are insolvent from your employer. You must report this immediately. In Germany the procedures are very lengthy. All finances must be disclosed and the assets are pledged. Another disadvantage is the bad creditworthiness and a low SCHUFA score, which reduces the creditworthiness. The insolvency proceedings will also be made public. If you are unemployed, then you will have to find a new job.

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