The self-employed and small business owners in particular have major concerns when it comes to insolvency. Many suspects that they will have to give up their activities as soon as the bankruptcy proceedings begin. The subsequent procedure can be a portfolio recovery lawsuit in such a drastic scenario. These worries are unfounded because neither insolvency administrators nor the trade inspectorate can prohibit a self-employed person from working. Financial worries from piling up bills and reminders and visits from the bailiff cause a lot of stress and damage health in the long run. Therefore, self-employed and small business owners should consider filing for bankruptcy if the company’s financial difficulties cannot be resolved within three to six months. In particular, it should be compared.
Consequences of insolvency proceedings for the self-employed and small business owners
In fact, the immediate effects of bankruptcy for the self-employed and small business owners are rather small. Because the following points must be observed:
- The debtor’s home is protected, so the inventory is usually not subject to seizure.
- The car, which is urgently needed for the continuation of the activity, is also under protection.
- The basic supply of cash is secured if the account is managed as a seizure protection account.
It is correspondingly important to the insolvency administrator that the person concerned continues to do his job. This is the only way he can work out solutions for debt repayment together with the debtor.
Release of self-employment
The task of the insolvency administrator is to increase the insolvency estate in order to satisfy the creditors as far as possible. Existing assets should therefore be used as profitably as possible. In the case of a business, it can be assumed that the insolvency administrator will only continue operations if the business can generate usable surpluses. If only the living expenses of the self-employed can be earned, the business is usually released by the insolvency administrator.
For the debtor, this means that he continues his professional activity, so to speak, outside of the insolvency proceedings. The creditors benefit from the activity. Because the debtor now pays an amount to the insolvency administrator every month, which corresponds to the attachable amount in the case of dependent employment.
Insolvency proceedings as an opportunity
Insolvency proceedings are not automatically a disaster for small business owners and the self-employed. It also offers the opportunity for financial restructuring while continuing to work independently. In order to take advantage of the restructuring opportunity, an application for insolvency should be filed as early as possible in the company crisis, even if insolvency is imminent. Without being plagued by debt and worries in the long term, physical and mental health are protected and new perspectives for the future are opened up. The self-employed also have the option of submitting an application for discharge of residual debt together with the application for insolvency in order to be freed from their debts. However, the court will only open insolvency proceedings if there are sufficient funds to pay the costs of the proceedings.
Personal bankruptcy for formerly self-employed
Self-employed people who have already ended their activity before filing for bankruptcy can apply for personal bankruptcy (consumer bankruptcy proceedings). However, this route is only open to the formerly self-employed if they have fewer than 20 creditors and there are no claims from employment relationships. These claims include, in particular, the claims of the tax authorities and social security agencies and wage claims of employees.
Benefits of consumer bankruptcy proceedings
- The consumer bankruptcy procedure is simpler and less expensive than the standard bankruptcy procedure.
- In consumer insolvency proceedings, the formerly self-employed person can be released from his debts if he submits an application for discharge of residual debt together with the insolvency application.
In order for the insolvency court to open insolvency proceedings, the debtor must still have financial means so that he is able to pay the costs of the proceedings. If he is completely penniless, the formerly self-employed person can also apply for a deferral of the procedural costs together with the application for insolvency and the application for discharge of residual debt. In addition, the penniless debtor can also contact the legal application office at the district court and apply for a counseling certificate there to prepare for personal bankruptcy. With the counseling certificate, he can take advantage of the advice of a lawyer at state expense. The debt counseling centers of the welfare associations and municipalities also offer support.
Self-administration: restructuring in insolvency
In addition to breaking up the company, the goals of insolvency proceedings can also be its continuation or restructuring. The continuation takes place via the self-administration procedure. If the insolvency administrator carries out the restructuring, this is referred to as external restructuring. If the restructuring is managed by the debtor, this is referred to as self-administration. In contrast, there is restructuring outside of insolvency proceedings.
The restructuring of a company can be successful if it is started as early as possible so that there is still enough money to finance the necessary measures. For the restructuring, the entrepreneur should get his own restructuring consultant on board.
A company can be reorganized if the planned reorganization measures result in
- the company is sufficiently likely to exist on the market under its own steam and
- the company can generate excess revenue.
The prerequisite for self-administration proceedings is:
no third-party application (e.g., from a bank, health insurance company or tax office) for insolvency
no circumstances are known of which disadvantages for the creditors can be expected.
In self-administration proceedings, the debtor is assigned a trustee. The administrator examines the financial situation of the debtor, monitors the management and assumes the role of mediator between the parties involved in the proceedings.
The continuation of the company in self-administration is regulated in an insolvency plan. The debtor remains the legal entity of the business and the creditors receive their money from the proceeds of the going concern.
Advantages of self-administration:
- better image than with an external restructuring by the insolvency administrator,
- the management remains in office.
If the debtor opts for self-administration, he applies to the insolvency court either for provisional self-administration or for protective shield proceedings. Both applications lead to self-administration proceedings when the insolvency court opens the proceedings. Which application the debtor makes should be decided with his restructuring advisor.