Are you wondering which requirements must be met for personal bankruptcy? In order to apply for personal bankruptcy, which allows debt relief within 3 to 6 years, a debtor must meet certain conditions. These are stipulated by law. In this article you will learn everything about the basic requirements, the out-of-court debt settlement and the bankruptcy procedure.
1. The basic requirement
All natural persons, i.e. people who have become insolvent, can apply for personal bankruptcy.
You are not allowed to have or to be self-employed. People such as innkeepers, lawyers with their own law firm, doctors with their own practice or entrepreneurs can usually not go into personal bankruptcy.
An exception to this rule is only made if self-employed:
- are no longer self-employed
- they owe less than 20 creditors
- they no longer have to pay outstanding salaries to their employees.
2. Out-of-court debt settlement
Personal bankruptcy can only be applied for if the debtor has tried out-of-court debt settlement and this has failed. That means: Before opening proceedings, the debtor must try to come to an agreement with his creditors without the help of the court. Debt settlement is considered to have failed in 3 cases:
- A creditor disagrees with the proposed repayments
- A believer executes a foreclosure
- The debtor is unable to keep the agreement (he can no longer pay).
The failure of the out-of-court settlement must be officially confirmed by a lawyer or a suitable body (e.g. debt advice or consumer advice center). After that, the debtor has 6 months to submit the application to open private bankruptcy proceedings to the court.
3. The bankruptcy procedure
There are different ways to carry out personal bankruptcy. In the simplified insolvency procedure, all remaining assets are distributed among the creditors. The debtor is released from his remaining debts when he has lived through the so-called good behavior phase for 6 years. In the conduct phase, the debtor must:
- Always disclose your income
- Notify the court of changes of address and changes in employment
- Notify the trustee of any change in employment
If the conduct of business phase is over, the debtor is deemed to be debt-free after 6 years. This is also the case if he was unable to pay any repayments in between. There is also an option to become debt free within 3 years. For this, the debtor has to repay 35% of his unpaid bills to his creditors. He also has to bear the legal costs completely himself. Critics claim that this is a total of 50% of the total debt must be paid. Therefore, only a few debtors would be able to become debt-free within 3 years.
The tax offices are still friends of vehicle seizure.
You can find out which information was given to the bailiff using the list, which you will receive directly due to data protection reasons. From this point on, you should be prepared for any seizure measures by the creditors at the latest.
There are often many tactical considerations as to whether submitting the financial report or obtaining third-party information can strategically be the lesser evil for you.
What are the consequences of submitting the asset information?
The information is electronically stored in a central register for two years. You will not get any more loans for the next few years. You do not have to file any further financial statements in the next two years if your financial circumstances have not changed. Otherwise you do not have to worry about returning it yourself.
In addition, you must now expect garnishments. It is most likely that the creditor will seize your account and the bank will terminate your overdraft facility. It is advisable to set up a so-called seizure protection account. Even contracts that are financially tied to you in the long term are no longer so easy to get. These include, for example, electricity contracts, cell phone contracts or rental contracts.
The personal bankruptcy filing – key to a debt free life
For many outsiders, the personal bankruptcy application is always threatening. That may be because this topic is literally about existence – without a house, without vacation, without the latest gadgets.
For those affected, however, personal bankruptcy is often the last resort. The procedure should therefore be seen as an opportunity to finally leave a hopeless situation behind. In 2017 alone, over 94,000 people took this opportunity to lead a debt-free life.
The way to personal bankruptcy always leads through appropriate advice and assistance. This help is primarily offered by the local debt counseling service. But tax advisors, aid organizations, church institutions and consumer advice centers are also happy to help.
There, the degree of indebtedness is first determined. It is determined whether you as the debtor are still able to pay off your debts on your own. If this project seems hopeless and an out-of-court settlement is unsuccessful, you can apply for personal bankruptcy at any time.
This is how the personal bankruptcy application is structured
The official name for the application for personal bankruptcy is “Application to open insolvency proceedings (Section 305)”. Since this application is very extensive, we recommend that you get competent help when filling out the application.
The personal bankruptcy application itself consists of two pages. Which contain the applications to open insolvency proceedings and the application for discharge of residual debt.
This is followed by seven systems that ask for the following information:
- Personal data
- The certificate of the failure of the out-of-court settlement attempt
- Assignment notices
- Assets overview
- Attachments to the asset overview
- Overview of creditors
- The judicial debt settlement plan
Annex five is the most extensive because it must contain a complete list of assets. This includes information on:
- Alimony payments
What to do now?
For you as the applicant, the “paperwork” begins. All information must be entered in full and to the best of our knowledge and belief. Two salary statements or other salary slips must be attached.
The out-of- court debt settlement plan must be attached to the annex on the failure of the out-of-court settlement attempt. The respective advisory body issues the certificate of the failure of the out-of-court settlement. If all forms and evidence are complete, they are submitted to the responsible local court.
You should definitely consider this in insolvency proceedings
Before filing a personal bankruptcy application, you should think about the following points:
- Do not go this difficult path alone! There are numerous pitfalls (deadlines, forms, rules of conduct) that can affect your life even years later. You will need a competent and reliable contact person for the duration of the bankruptcy – three to six years.
- Without exception, all debts and all assets must be listed and disclosed.
- Also consider that there will be no major new purchases for the next few years. An ongoing personal bankruptcy appears in the court, which is why mail order companies, banks and dealers will not give you any loans (installment payments) during this time.
- Before submitting an application, take a look at the nationwide attachment table . The valid seizure exemption limit can be seen there. You can use these figures to work out – ideally together with the advisor – whether you still have enough funds for all obligations during the procedure. This is a must, especially with monthly spouse or child maintenance.
Never go into personal bankruptcy without debt counseling
Even for people with previous knowledge of administration or bookkeeping, personal bankruptcy is almost always obscure and confusing: the forms and attachments with their “official German”, the rules and deadlines in court, numerous questions that take months or years to arise – all of that are good reasons to bring debt counseling on board.
There, competent experts take on the problem of debt and go through the application process together with you. Debt counseling does not only offer professional help. Over-indebtedness is always a personal exception for those affected. Many people seeking help believe that they can no longer control their lives. This results in psychological pressure, depression, shame and despair. The employees of the debt counseling service are also trained for this. You catch the debtor and personally give him a new perspective.
Seeking help is not a shame or a sign of weakness. That is why you shouldn’t put over-indebtedness on the back burner and, in an emergency, accept the support offered.