How are insolvency proceedings conducted in Germany?

What are out-of-court debt settlement proceedings?

Your first step before you embark on insolvency proceedings is to make an appointment with a debt counselling service. Once you have an appointment, take all the documents relating to your financial situation with you to the meeting. It is important that you not only have the documents relating to your debts with you, but also all certificates relating to your income and, if applicable, those of your spouse and children.

The debt counselling service will review your documents and inform all your known creditors about the debt settlement procedure. The creditors will be asked to send current debt calculations and to name possible collateral. 

Once all current lists of claims and the documents that are important for the further process have been collected, your debt settlement plan will be drawn up on the basis of the available information. This involves submitting offers to your creditors with the aim of settling your debts in the foreseeable future. 

In most cases, your creditors will be offered a compromise in the form of a settlement amount to be paid in one lump sum or by monthly instalments based on your income. If even a small payment by instalments is not possible with your current income, a so-called flexible zero plan can be offered, which only provides for payments when your financial situation improves.

This plan is sent to all creditors named in the plan. The approval of all creditors is required for the plan to come into force. If only one creditor says "no" to the plan submitted, it has failed. 

The debt counselling service now has the choice of whether to amend the plan or immediately file an application for the opening of insolvency proceedings with the competent local court.

What are judicial debt settlement proceedings?

If an application is submitted to the competent local court, it will examine all the documents handed in. The local court will take a particularly close look at the out-of-court debt settlement plan. It is especially interested in the number of creditors, the amount of the claim and the previous voting behaviour. 

If the local court still sees a chance of a plan being finalised, the plan is sent to all creditors again. The consent of smaller creditors with small claims can be replaced by the local court if necessary. It should also be noted that in the case of a judicial debt settlement plan, you must expressly object to the plan - in contrast to the out-of-court debt settlement plan, non-response now means consent to the plan submitted.

If the plan materialises, this will be determined by the local court, and the application to open insolvency proceedings will then be closed.

From then on, it is your responsibility to make the payments to your creditors as agreed in the plan. 

How are insolvency proceedings opened?

However, if the court's debt settlement plan does not materialise, insolvency proceedings will be opened against your assets by the local court. In the first step, the court appoints an insolvency administrator to conduct your insolvency proceedings. 

If you want to be released from your debts after the insolvency proceedings have been completed and receive residual debt discharge, you must apply to the local court for residual debt discharge in addition to the application to open insolvency proceedings. To do this, you enclose a declaration with your application that you will assign your attachable income to your creditors for the duration of the good-conduct period - from then on for the next 3 years. Your debt counselling service will usually help you with this. 

Your insolvency administrator approaches you and records your attachable assets. They will see which items can be sold. The proceeds are then collected in a separate account. The administrator then checks the claims of your creditors to ensure they are correct, determines them and summarises them in an insolvency table. Of course, you have the right to file an objection against a determination. The extract from the insolvency table is a title from which creditors can pursue enforcement proceedings against you if you do not receive residual debt discharge after the end of the insolvency proceedings. 

After the insolvency administrator has recorded your creditors and their claims, he draws up a so-called distribution record. This list is filed at the court registry so that the parties involved can get an idea of the debts and possible distribution of the available assets among the creditors.

Furthermore, the insolvency court publishes the sum of the registered claims and the amount available for distribution in an announcement for the creditors' information.

How long do insolvency proceedings last?

The duration of the insolvency proceedings depends on the amount of work your insolvency administrator has to do to handle your proceedings. However, if you have also filed an application for discharge of residual debt when applying for the opening of insolvency proceedings, you can expect your proceedings to end with a discharge of residual debt after around 3 years. However, if you have already received residual debt discharge and file a new application, you can expect a longer good-conduct period of 5 years. 

How much do insolvency proceedings cost?

The costs of consumer insolvency proceedings average between EUR 2,000 and 3,000. These depend on the effort required from the insolvency administrator and your assets to be distributed. 

The costs incurred must be borne by you. If your total assets are insufficient, it may be advisable for you to apply to the insolvency court for a deferral of the costs directly with the application to open insolvency proceedings.