Private individuals - consumer insolvency proceedings

First Steps

How can I become debt-free? How do I get out of financial trouble?
Initial consultation with a personal introduction and assessment of your personal and financial situation: At the beginning of your journey towards financial freedom, an in-depth conversation about your needs will take place. The focus will be on clearly explaining our methodological approach. We will explain exactly what options are available to you, the pros and cons of these options, and together, we will find the best way out of your debts. This consultation will be exclusively personal so that you can meet your debt advisor, and they can gain an overview of your personal and financial situation. The more documents and information you bring to this appointment, the better and more precisely we can work together to find your way out of debt. Due to the current situation with the COVID-19 pandemic and the associated contact restrictions, we are currently also offering consultation appointments via video conference or phone, should you prefer it.
Setting up a garnishment protection account: If your account has already been garnished by one or more creditors, we can help you set up a garnishment protection account (P-Konto), which can protect at least €1,178.59 on your current account from garnishment by your creditors, depending on your family situation.
Contacting creditors: Afterward, we will first contact all your creditors to obtain the current status of all your liabilities.
Listing all liabilities: After contacting your creditors, we will create a current list of all your liabilities from this information. This is necessary to create a debt settlement plan and the subsequent mandatory out-of-court debt settlement attempt in the consumer insolvency process, which will follow the preparation phase as the next step in your way out of the debt trap.

The first option for getting rid of your debts is the out-of-court settlement attempt with creditors. In this process, it is possible to agree on a lump-sum payment or a monthly installment plan, typically running for three years.
In an out-of-court settlement attempt, it is important to distinguish between what our shared goal is:
If we have jointly decided that bankruptcy is the best solution for you to become debt-free, we offer creditors only the garnishable income, which is usually a much smaller amount compared to the total debt. This will likely result in an immediate rejection and, therefore, failure of the out-of-court settlement attempt. This opens the way to bankruptcy since the failure of the out-of-court settlement attempt is a mandatory prerequisite for personal bankruptcy. However, if the out-of-court settlement attempt is unexpectedly accepted by all creditors, you will not be at a disadvantage because, just like in bankruptcy, you will only need to pay the garnishable portion of your income to your creditors. Even if it is clear from the outset that an out-of-court settlement has no chance of success, it must still be attempted. The unsuccessful attempt with the help of a "suitable institution" is a mandatory requirement for individuals to proceed with a consumer or personal insolvency procedure. Suitable institutions include legal professionals such as lawyers, notaries, or tax advisors.
If we have jointly decided to attempt an out-of-court settlement with creditors, the procedure is different: To achieve the out-of-court settlement, we first make an offer to all creditors, which is significantly lower than your original debt. If this initial offer is accepted by all creditors, we will then finalize the out-of-court settlement with all creditors. If some creditors reject the offer, we will make a higher offer. This process continues until either all creditors have agreed, or it becomes clear that not all creditors will accept a lump sum or monthly installment that is acceptable to you. However, it is difficult to predict how much we can negotiate down with the creditors, as this depends individually on each creditor.

There are two conditions that make it sensible to complete an out-of-court settlement with your creditors:

1. You must be absolutely sure that you know all your creditors, as only creditors who sign the settlement will be part of the out-of-court agreement.
2. You must be sure that you can meet the agreed installments throughout the entire duration, as failure to do so will result in the settlement failing.
   If, with our help, you reach an out-of-court settlement with all creditors and meet all obligations according to the agreement, the process will end when the contract term expires, and you will be debt-free!

If the out-of-court debt settlement attempt fails, the debtor can file an application to open the personal insolvency procedure with the responsible insolvency court within six months.
The insolvency court can then decide, at its discretion, whether it wants to attempt a judicial debt settlement with the creditors. This judicial settlement attempt is another attempt to reach an agreement between the debtor and the creditors with the help of the insolvency court to avoid the insolvency procedure. The plan itself typically does not differ from the out-of-court debt settlement plan.
If the insolvency court is of the opinion that the judicial debt settlement plan will not be accepted by the creditors, it will immediately order the continuation of the procedure for opening the personal insolvency process.
If it believes the plan has a chance of success, it will send the judicial debt settlement plan to all known creditors and request them to respond within one month. If one or more creditors do not respond, it will be considered as consent to the submitted plan. However, even if several creditors reject the plan, the insolvency court can, upon the debtor’s request, convert this rejection into consent if more than half of the creditors have agreed, and the total sum of the agreeing creditors exceeds half of the total known debts (so-called "numerical and monetary majority").
If this "numerical and monetary majority" is not reached, the insolvency court will decide whether to open the personal insolvency procedure.
If the judicial debt settlement plan is successful, either because all creditors have agreed or because their consent has been replaced by the court, it has the effect of a settlement agreement, and the debtor will be freed from their debts upon proper fulfillment of the plan. However, this only applies to the debts known to the insolvency court and that were included in the judicial debt settlement plan.

If both the out-of-court and judicial debt settlement attempts fail, the insolvency court will decide on the opening of the consumer insolvency procedure.
The consumer or personal insolvency procedure is a simplified insolvency procedure for individuals. It is available to all debtors who do not engage in self-employed economic activity or have not done so in the past. (§ 304 paragraph 1 InSO). This includes: unemployed individuals, social welfare recipients, school students, interns, university students, apprentices, employees, pensioners, and individuals performing civilian or military service. Even a managing director of a GmbH or a member of the board of an AG is considered a consumer under § 304 InsO, provided they are not also a shareholder with at least 50% of the company shares.
If a debtor has engaged in self-employment, they are still eligible for the consumer insolvency procedure, provided they have fewer than 20 creditors at the time of the application and have no claims from employment relationships. Claims from employment relationships include wage and salary claims from former employees, claims from tax offices for income tax, and claims from social security providers.
The insolvency court will now check if the prerequisites for opening the insolvency procedure are met.
These requirements are:

• Insolvency or impending insolvency (only at the debtor’s request): This occurs when the debtor is unable to settle their due payments, or it is expected that they will not be able to do so.
• Coverage of procedure costs or application for deferral of costs: The debtor must be able to cover the procedural costs (approximately €2,000 to €2,500 for court fees and remuneration of the insolvency administrator in the case of no or very low garnishable income) or have applied for deferral of these costs. The deferral can be granted if the debtor’s assets are expected to be insufficient to cover the procedure costs. The deferral ensures that debtors with no assets still have access to insolvency and debt relief, as without this option, many debtors would be unable to start over economically. If, after debt relief has been granted, the debtor is still unable to cover the procedural costs, the deferral can be extended by the insolvency court upon request, and after four years, it can even be waived entirely. Otherwise, the debtor will be required to pay the procedure costs.
  Once these conditions are met, the insolvency court opens the insolvency procedure. From this point onward, no creditor may seize the debtor's assets. The court will appoint an insolvency administrator, whose main task is to liquidate the debtor's assets, meaning all garnishable property.
  However, the insolvency administrator cannot seize everything. The debtor must be allowed to keep a minimum amount, which is currently €1,340 per month, even in the case of wage garnishment or account garnishment after setting up an exemption account. This amount increases for higher income or if the debtor has maintenance obligations (currently by €500.62 for the first person and €278.90 for the second to fifth person per month).
  Certain wage payments are also exempt or only partially garnishable. For example, overtime can only be garnished to half. Holiday and loyalty bonuses, expense allowances (e.g., travel expenses), and hazard or hardship allowances (e.g., for Sundays, holidays, or night shifts) are completely exempt from garnishment, as long as they do not exceed usual amounts. Christmas bonuses (or 13th-month salaries) are also exempt from garnishment up to half of the monthly gross income, but a maximum of €500.
  The insolvency administrator will also check whether the debtor has any garnishable assets. This includes all items the debtor owns and does not necessarily need for daily living or for their work. However, the debtor still has the option to buy certain items, like a car, out of the insolvency estate by paying the insolvency administrator the value of the item.
  After liquidating the assets, the procedural costs are paid first (if the administrator has collected money). If any funds remain, creditors will be paid proportionally.
  The insolvency court then concludes the formal insolvency procedure, and the last part of the personal insolvency procedure begins, where the debtor can start a new life without debt:
  The so-called good conduct period or debt discharge phase.

If both the out-of-court and judicial debt settlement attempts fail, the insolvency court will decide on the opening of the consumer insolvency procedure.
The consumer or personal insolvency procedure is a simplified insolvency procedure for individuals. It is available to all debtors who do not engage in self-employed economic activity or have not done so in the past. (§ 304 paragraph 1 InSO). This includes: unemployed individuals, social welfare recipients, school students, interns, university students, apprentices, employees, pensioners, and individuals performing civilian or military service. Even a managing director of a GmbH or a member of the board of an AG is considered a consumer under § 304 InsO, provided they are not also a shareholder with at least 50% of the company shares.
If a debtor has engaged in self-employment, they are still eligible for the consumer insolvency procedure, provided they have fewer than 20 creditors at the time of the application and have no claims from employment relationships. Claims from employment relationships include wage and salary claims from former employees, claims from tax offices for income tax, and claims from social security providers.
The insolvency court will now check if the prerequisites for opening the insolvency procedure are met.
These requirements are:

• Insolvency or impending insolvency (only at the debtor’s request): This occurs when the debtor is unable to settle their due payments, or it is expected that they will not be able to do so.
• Coverage of procedure costs or application for deferral of costs: The debtor must be able to cover the procedural costs (approximately €2,000 to €2,500 for court fees and remuneration of the insolvency administrator in the case of no or very low garnishable income) or have applied for deferral of these costs. The deferral can be granted if the debtor’s assets are expected to be insufficient to cover the procedure costs. The deferral ensures that debtors with no assets still have access to insolvency and debt relief, as without this option, many debtors would be unable to start over economically. If, after debt relief has been granted, the debtor is still unable to cover the procedural costs, the deferral can be extended by the insolvency court upon request, and after four years, it can even be waived entirely. Otherwise, the debtor will be required to pay the procedure costs.
  Once these conditions are met, the insolvency court opens the insolvency procedure. From this point onward, no creditor may seize the debtor's assets. The court will appoint an insolvency administrator, whose main task is to liquidate the debtor's assets, meaning all garnishable property.
  However, the insolvency administrator cannot seize everything. The debtor must be allowed to keep a minimum amount, which is currently €1,340 per month, even in the case of wage garnishment or account garnishment after setting up an exemption account. This amount increases for higher income or if the debtor has maintenance obligations (currently by €500.62 for the first person and €278.90 for the second to fifth person per month).
  Certain wage payments are also exempt or only partially garnishable. For example, overtime can only be garnished to half. Holiday and loyalty bonuses, expense allowances (e.g., travel expenses), and hazard or hardship allowances (e.g., for Sundays, holidays, or night shifts) are completely exempt from garnishment, as long as they do not exceed usual amounts. Christmas bonuses (or 13th-month salaries) are also exempt from garnishment up to half of the monthly gross income, but a maximum of €500.
  The insolvency administrator will also check whether the debtor has any garnishable assets. This includes all items the debtor owns and does not necessarily need for daily living or for their work. However, the debtor still has the option to buy certain items, like a car, out of the insolvency estate by paying the insolvency administrator the value of the item.
  After liquidating the assets, the procedural costs are paid first (if the administrator has collected money). If any funds remain, creditors will be paid proportionally.
  The insolvency court then concludes the formal insolvency procedure, and the last part of the personal insolvency procedure begins, where the debtor can start a new life without debt:
  The so-called good conduct period or debt discharge phase.

Once the debt discharge has been granted to you, the consumer insolvency procedure is complete! You are debt-free, and almost all of the claims against you at the beginning of the insolvency procedure are forgiven. You can now start anew without any debts!
The only exceptions to debt discharge are the following liabilities:

• Any claims that arose during the insolvency procedure
• Liabilities from intentionally committed unlawful actions: This most commonly applies to cases of unemployed individuals who obtained benefits from the unemployment office based on false information. It also applies to cases of so-called fraudulent procurement: If a creditor proves that the debtor ordered goods without being able to pay for them, this is considered an intentional unlawful act and is excluded from the debt discharge.
• Claims from overdue legal maintenance obligations
• Claims from tax evasion
• Liabilities from fines
• Liabilities from interest-free loans granted to cover the costs of the insolvency procedure
• Any unpaid previously deferred procedural costs. However, if after the debt discharge, your income remains below the garnishment exemption threshold, you can apply for an extension of the deferral. These costs could potentially even be fully forgiven if you continue to earn little. This is possible if, for four years after the debt discharge, you are unable to cover the deferred procedural costs (Section 4b of the Insolvency Code).
  The debt discharge now occurs 36 months after the opening of the insolvency procedure following the legal amendment of 18.12.2020. This regulation applies retroactively to all insolvency applications made from 01.10.2020 onwards.
  Previously, it was usually 72 months after the opening of the insolvency procedure, but it could have occurred earlier under certain circumstances—after five or even three years. Read more about the duration of the consumer insolvency procedure here.
  Additionally, a request should be made to the credit reporting agency (Schufa) to have the entries deleted. These will be removed six months after the end of the insolvency procedure, effective from April 2023.
  Furthermore, any garnishment protection account should be converted back into a regular checking account.

Under the new legal framework, debt discharge occurs three years after the opening of all newly initiated insolvency proceedings.