If both attempts to settle debts out of court and in court have failed, the insolvency court decides whether to open consumer insolvency proceedings.
Consumer or private insolvency proceedings are simplified insolvency proceedings for private individuals. This is open to all debtors who do not carry out or have not carried out any self-employed economic activity. (Section 304 (1) InSO). This includes: Unemployed persons, welfare recipients, school pupils, interns, students, trainees, employees, pensioners and those doing civil or military service. A managing director of a GmbH and a member of the management board of an AG are also consumers within the meaning of Section 304 InsO if they are not also shareholders with a stake of at least 50%.
If a debtor is self-employed, consumer insolvency proceedings are also open to them if they have fewer than 20 creditors at the time of the application to open proceedings and there are no claims against them from employment relationships. Receivables from employment relationships are wage and salary claims from former employees, claims from tax offices for wage tax and claims from social security institutions.
The insolvency court is now examining whether the conditions for opening insolvency proceedings are met.
These are:
Insolvency or imminent insolvency (only if applied for by the debtor): This exists if the debtor is not in a position to settle his due payments or if he is unlikely to be able to do so.
Covering the costs of the proceedings or applying for a deferral of the costs: The debtor must be able to pay the costs of the proceedings (approx. €2,000 – €2,500 for court costs and remuneration of the insolvency administrator if there is no or only very little attachable income) or have applied for a deferral of the costs of the proceedings. The only condition for granting a deferral is that his assets will probably not be sufficient to cover the costs of the proceedings. The deferral of costs is also intended to open up the path to insolvency and discharge of residual debt for debtors without means, as otherwise many debtors would not be able to make this path to a fresh economic start at all. If the debtor is still unable to cover the costs of the proceedings after the discharge of residual debt has been granted, the deferral can also be extended again following an application to the insolvency court and may even lapse completely no later than four years after the discharge of residual debt. Otherwise, the debtor must pay the costs of the proceedings.
If these conditions are met, the insolvency court opens insolvency proceedings. From this point on, no creditor may seize the debtor’s property. The insolvency court now initially appoints an insolvency administrator. Its main task is to realize the insolvency estate, i.e. the debtor’s entire attachable assets.

However, the insolvency administrator may not seize everything. For example, both in the case of an attachment of earnings directly from the employer and in the case of an account attachment from the debtor, the debtor must have at least the so-called attachment-free amount of currently € 1,178.59 per month available after setting up an attachment protection account. This amount increases if the debtor has a higher income and maintenance obligations (currently € 443.57 for the first person and € 247.12 for the 2nd-5th person per month).
In addition, there are also salary payments that are not or only partially attachable. For example, only half of the overtime can be seized. Vacation and loyalty allowances, expense allowances (expenses), risk and hardship allowances (Sunday, public holiday and night shift allowances) are, insofar as they do not exceed the usual scope, completely unattachable. Christmas bonuses (or 13th month’s salary) are also exempt from attachment up to half of the gross monthly income, but up to a maximum of € 500.

The insolvency administrator will also check whether the debtor has any attachable assets. In principle, this includes all items that belong to the debtor and that the debtor does not necessarily need to live or work. However, the debtor still has the option of purchasing certain items, such as a car, from the insolvency estate by reimbursing the insolvency administrator for the value of the item.

Once the insolvency estate has been liquidated – provided the insolvency administrator has collected any money at all – the first thing to be paid is the costs of the proceedings. If there is still money available afterwards, the creditors are paid out on a pro rata basis.

The insolvency court then ends the formal insolvency proceedings. Now the last part of the personal insolvency proceedings begins, at the end of which the debtor can start a new life without debts:

The so-called good conduct period or residual debt discharge phase.