The process of implementation of a personal bankruptcy essentially consists of three stages:
1. Preparation (approx. 6 weeks)
Preparing your debt relief begins with an assessment of your individual debt situation. Based on your information on the amount of debt, an approximate number of creditors, income, maintenance obligations, and existing assets (especially real estate and vehicles), we can tell you specifically which measure is the right one in your situation to get out of the spiral of debt. If personal bankruptcy is the next right step, we will first identify all of your creditors and then prepare your bankruptcy petition. Of course, we are also available for any open questions if you have any portfolio recovery lawsuit problem.
Furthermore, the following 4 steps must be observed for thorough preparation:
First step: secure your remaining assets
As part of your preparation, you should secure any assets you still have. We will show you, for example, how you can keep a car, get credit from insurance companies or get your inheritance. You can find out more about what you can keep in personal bankruptcy here.
Second step: open a new account
First of all, you should open a new account with a new bank. First, open this account as a normal checking account. One or two days later, visit your bank again and apply for the newly set up account to be used as a garnishment protection account (“P account” for short).
Tip from the specialist lawyer: When you visit us for the first time, do not mention that the new account is to be used as a garnishment protection account; just open a conventional current account. Banks are only obliged to convert an existing account into a P account (cf. § 850k VII ZPO), but there is no obligation to set up the garnishment protection account from scratch. You run the risk of being rejected by the bank if you “burst your door in the house.”
Important: If you have children and/or are married, you can likely increase the protected amount on your garnishment protection account after you have set up the account. As a specialist law firm for insolvency law, we insist you the necessary certificate:
Make sure that all expected income is transferred to this account with immediate effect and thus protect these assets from seizures by your creditors. Only when you are in the insolvency proceedings, i.e., when the decision to initiate was found in your mailbox, are you fully protected from the action of your creditors.
Third step: stop paying your creditors
Probably the most important step: after you’ve set up a new account and secured your assets, stop all payments to your creditors. You will only continue to pay those payments that serve to secure your livelihood, i.e., rent, electricity, internet, etc. You cancel all other standing orders and direct debit authorizations.
The reason for this is that you are obliged to refrain from preferring individual creditors even before entering into insolvency proceedings. For example, if you pay your neighbor or your bank € 1,000 shortly before the opening of insolvency proceedings – but nothing to the other creditors – you could be liable to prosecution under Section 283c of the German Criminal Code.
However, there is also a very logical reason for suspending payment: You no longer benefit from making payments now because your debts will be deleted by the insolvency proceedings anyway. So there is no point in reducing the mountain of debt; on the contrary: it is better to keep the money. This is legally unobjectionable and confirmed by a court (cf. OLG Oldenburg ZVI 2003, 483).
Your creditors may try to initiate garnishments when they stop paying. You can only counter this with the new account. Also, you have to bite your teeth for a moment because: As soon as your personal bankruptcy is opened, no creditor is allowed to take action against you (so-called attachment and enforcement ban, according to §§ 88, 89 InsO ). When the opening resolution is in your mailbox, the “game” with your creditors is over.
Fourth step: Gather more creditor correspondence
While you are pressing ahead with your personal preparation, we are already in the background tracking down your creditors and collecting the debt levels. To do this, we make queries from all common debtor registers.
In the meantime, you should collect any letters that you may receive from creditors. We have summarized for you here how you can best organize this.
2. Insolvency proceedings and conduct of business period (three years in total)
The private insolvency proceedings are opened approximately one month after the application has been submitted – it then takes another three years.
At this point, all attachments by your creditors will be stopped (see §§ 88, 89 InsO ). You are no longer allowed to contact the creditors but only the insolvency administrator. If the debtor still has larger assets, the liquidator may dispose of them.
During bankruptcy, you will have the non-attachment portion of your income. You can dispose of this freely. How high this is always different. With the help of our attachment calculator, you can easily calculate this.
The 6 obligations in personal bankruptcy are:
- Obligation to work (in the case of unemployment, you have to seek employment; more on this here )
- Surrender of half of inheritance and donation during bankruptcy
- Notification of a change of residence
- Display of a change of job
- No intentional or grossly negligent justification of inappropriate liabilities during the conduct of business phase
- No direct payments to creditors
The private bankruptcy proceedings are usually opened about 5 weeks after applying for private bankruptcy. The term of the personal bankruptcy also begins at this point. As a rule, this – referred to as private insolvency proceedings “in the narrow sense” – takes one year. The bankruptcy court appoints an insolvency administrator. This writes to all creditors and forbids them further seizures or executions. He alone may utilize the attachable assets. The assets such as household furniture needed to work car, computer, and television to keep.
In many cases, there are no attachable assets. The insolvency administrator writes a so-called final report. After the insolvency proceedings in the narrower sense, it goes on to the conduct of the business period.
You are no longer obliged to do anything to the creditors. The same applies to your obligations towards the bailiff: he is no longer allowed to take action against you. An insolvency administrator will be appointed to represent the interests of your creditors instead. Therefore, under no circumstances should you view the trustee as your legal advisor.
As part of the insolvency proceedings, he is commissioned to utilize existing assets, to collect the attachable amount and, like an “arbitrator,” to ensure that both you and your creditors adhere to the rules: You have to meet your obligations, the creditors are no longer allowed to contact you.
Since questions often arise when dealing with the insolvency administrator, we offer our clients support at this stage. So we can continue to be by your side and support you in your exchange with the insolvency administrator.
The period of conduct
The period of good conduct begins about a year after the insolvency proceedings in the narrower sense. It is a considerable relief for you: Contact the trustee – this is what the insolvency administrator is called during the business period – is reduced to an annual written questionnaire. You can now save money or receive benefits of any amount.
You can basically organize your life again as you did before personal bankruptcy – with the exception that you owe the attachable amount every month. Many of our clients report that they are mentally much better at this point than they were before the bankruptcy.
This is certainly because you have now regained an overview of the financial situation and can finally put away the future’s pent-up uncertainty. You know exactly what amount is available each month, and you can plan accordingly.
3. Debt discharge
The last section is then the discharge of residual debt, so to speak, the finish line of your debt relief:
- The remaining debt is discharged three years after filing for insolvency – you are debt-free. (For procedures from October 1st, 2020)
- The residual debt discharge includes all debts – regardless of their amount or the number of creditors.
- Excluded are claims arising from deliberate unlawful acts, tax evasion and penalties or fines, and intentionally unpaid maintenance.
Three years after the opening of personal bankruptcy, the insolvency court finally grants you the discharge of residual debt by resolution (Section 300 (1) InsO). Your creditors lose their claims, and you are now debt-free. It doesn’t matter whether you owe this debt to a bank, the gym, or your neighbor. Only a few types of receivables are not included in the discharge of residual debt:
Claims not covered by the discharge of residual debt
There are exceptions to the discharge of residual debt after three years: debts from deliberate unlawful acts, tax evasion, fines, or penalties will not be covered by the discharge of residual debt (Section 302 InsO). You lose all other debts, but you should pay them off in an installment – or settle them through an insolvency plan—more about the exceptions to the discharge of residual debt.