Personal bankruptcy for the self-employed

The most important things at a glance:

What is personal bankruptcy?

A personal bankruptcy exists when the person concerned has liabilities that cannot be repaid in the foreseeable future and thus lead to high levels of debt. The only way out is through a debt counselor, who helps the person concerned first to reach an out-of-court settlement with his creditors in order to settle the debt. The personal bankruptcy is intended to help debtors to make a new financial start possible. If the debtor has previously tried to reach an out-of-court settlement with the obligee and has failed, the proceedings will be decided by a court. However, this is only possible if the person concerned was not previously self-employed. For the self-employed, standard bankruptcy then comes into force.

Are self-employed persons allowed to file for personal bankruptcy?

Personal bankruptcy and self-employment are not mutually exclusive. If a company, freelancer or self-employed person is no longer able to pay the salaries of their creditors and is faced with an impending insolvency, a standard bankruptcy must be applied for.
Private insolvency proceedings for self-employed debtors are only possible in exceptional cases, provided that no more than 19 creditors are involved and “there are no claims against them from employment relationships”, for example outstanding salary payments from their own employees.

What is a regular bankruptcy?

The insolvency regulation stipulates that regular insolvency proceedings must be applied for if there is insolvency in a company, freelance worker or self-employed debtor. This means that outstanding claims by creditors can no longer be settled. Section 19 InsO states that legal persons with overindebtedness are also permitted to open standard bankruptcy. Regular bankruptcy gives those affected the opportunity, despite being self-employed, to get rid of their debts within 3, 5 or 6 years. In most cases, self-employment does not necessarily have to be given up.

How does a regular bankruptcy work?

If a company is threatened with insolvency or over-indebtedness, an application for bankruptcy should be dealt with in good time. This is particularly important for the self-employed to prevent the company from closing down.

Opening procedure
Basically, you submit an application for regular bankruptcy to the competent bankruptcy court. This is done either by the debtor himself or by the obligee. As a rule, bankruptcy does not require an out-of-court attempt to reach an agreement with the creditors. An extremely meticulous preparation is definitely the most important and intensive section of the bankruptcy process. In these proceedings, the court first checks whether there is a reason for bankruptcy. Possibilities for security measures can be the setting of foreclosure measures in the case of movable property or real estate, the appointment of an insolvency administrator, the obligation of the self-employed person to provide information, the post ban and much more.

Opening resolution
The court will only approve the application if the procedural costs of the standard insolvency are fully covered. Natural persons have the option of applying for deferral of the costs to be covered. If the application is successful, an insolvency administrator is appointed to the debtor who is responsible for assessing the company's economic situation. He assesses whether it is still possible to continue self-employment. From this point onwards, you shouldn't go into any new debt. If the court comes to the conclusion that sufficient assets are available to bear the costs of the proceedings, the proceedings are opened by decision.

Registration of the claim
A complete list of creditors is important for the complete application. If the person concerned should have forgotten a creditor, this must be reported to the insolvency administrator immediately; otherwise, this may result in a failed discharge of the remaining debt.

Report and test date
At the reporting date, the insolvency administrator announces the financial situation of the debtor and explains whether the company will continue to exist in whole or in part. If this is the case, it will be known whether there is a prospect of an insolvency plan or not.
As a rule, this is followed by the test date where the parties involved object to the individually registered claims.

Meeting of creditors
A creditors' meeting, made up of the creditors, then decides whether the company is to be restructured or whether the assets (insolvency estate) are to be realized. This is where the decision is made about realizing the assets or continuing the company. If not restructured, the company no longer exists.

In the case of natural persons, such as self-employed and freelancers, on the other hand, the good behavior period applies. This period extends to 3, 5 or 6 years. After this time, the remaining debt will be released.

Deadline and cancellation of bankruptcy proceedings
If the debtor has a certain inventory, it will be distributed at the closing date. First, the costs of the procedure and trustee are paid off. The remaining attachable assets are divided among the creditors.
The lifting of the bankruptcy process is the final stage of this process. If the corresponding register of assets has been distributed, the court cancels the standard insolvency proceedings by means of a resolution. Finally, the welfare period and the discharge of residual debt follow.

Welfare period
The welfare period begins with the opening of insolvency proceedings. The duration is approximately three, five or six years from the date of opening. During this period, the working people are chosen to perform certain duties. If the person concerned fulfills this activity, the remaining debt is discharged and the insolvency proceedings are finally concluded. During this phase, the attachable income is to be handed over to the trustee or insolvency administrator. This then distributes the money to the creditors once a year.

When does regular bankruptcy end for natural persons?

In the case of natural persons, such as the managing director of a GmbH, the standard insolvency ends when the discharge of residual debt expires, whereas legal persons do not have the option of insolvency proceedings. The duration depends on various factors, including the size and complexity of the company.

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