Filing for bankruptcy in Germany

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Recently lost my job and have overdrafts & loan repayments I can no longer meet...does any TT member know how does one go about filing for bankruptcy in Germany?

 

Many thanks in advance for your advice.

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See an expert. Might be cheaper in the long run to negotiate a deal to pay a small xx% over time on the debts. Bankruptcy might seem the easy option but depending on the amount involved it is an "expensive" option because your credit record is blighted for years.

 

I have no idea of your circumstances but I would not even consider it unless the debt was €50,000+. Below that level you could negotiate down to €10,000 over 5 years or summat for example.

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Do you read German? If so this link should give you all the info you need.

 

If not here's the very cut-down version:

 

Difefrent rules apply for businesses and private individuals.

A "sole-trader" i.e. one man business that is not a "Juristische Person such as GmbH" is treated as a private individual.

This explanations assumes you're a private individual.

 

You must first attempt to reach out of court agreement with your creditors.

If that fails (and you have to be able to show that fact) you apply to the responsible court for insolvency proceedings.

You make application for "Restschuldbefreigung" or, depending on the circs. you don't.

Restsch... means that if you behave correctly and make good effort to repay your creditors at a level set by the court, then after 7 years the remainder of your debts will be dissolved. In some circs. the period may be shorter. Not everybody can apply for Restschuldbefreiung.

You provide the court with full details of all your creditors and income and savings and property.

The court appoints a receiver.

The receiver administers your affairs, decides what you have to pay to your creditors and what income you're allowed.

The insolvent person may not acquire any new debts and is in effect under the protection of the court.

 

There are many lawyers these days specialised in starting such actions. If you really need to go this route, I'd suggest you seek one out.

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Wow! So over here you dont have the UK system? In the UK you sign on the dotted line, and exactly 12 months later you are 100% released and debt free. Obviously banks won't lend you a biro at that stage, but you are technically debt free.

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Attention: this is a website form Austria! The legal statements there relay to laws in Austria, not in Germany

 

The process to file for private bankcruptcy is quite structured in Germany. In a first step you will have to inform all your creditors that you are unable to meet the payments/dues and offer them a plan/quota. You have to list all creditors and you can not give preferential treatment to anyone of them, otherwise you could end in real troubles. At that time, of course, for instance your bank will probably cancel your credit immideately, freeze accounts etc. Others like phone company will probably also freeze/stop services, so perpare yourself for that. If you owe the Finanzamt some VAT, make sure that you pay this beforehand because this is non negotiable and you will face criminal charges of you do not pay it.

If all your creditors agree toy our proposal, you can basically avoid legal bankrupcty and just stick with the plan. But it is unlikely, from what I read it is very seldom at that stage that all your creditors will agree. Which brings you to the next step: you have to go to court now and declare bankruptcy there because your creditors are not willing to agree to a plan/quota. You can not declare bankruptcy before you have tried to get your creditors to agree!

The court will hand you papers (I have heard they are quite a package, which means you will need help from a native German or even a lawyer - for whom you need to set asside some money beforehand, obviously) in which you have to lsit your assets, income and debts. Make sure everything is filled-out correctly because if you leave out important stuff you could again face criminal charges and loose the protection of being under bankruptcy.

If all that has been done and works, you will be under the control of an "Insolvenzverwalter" for the next 7 years. You can keep a basic amount of your income (the amount is determined by law and depends on whether you are single or with family/dependants, a single person can expect to have free access to about 1100 EUr/month to pay for rent, food etc). All money you earn above this limit will be collected and distributed among your creditors. If you do this for 7 years accurately and fairly, all remaining debts will be cleared of your plate and you are afterwards debt free.

 

This is how I have experienced it with a friend and a former client. since there are a couple of loopholes in the laws which can make you loose the protection and the chance to get out debtfree after 7 years if not paid attention to, the help of a specialized lawyer would be very very very much recommended. BUt as said above, you'll need to have some money ready to pay the lawyer upfront.

 

Good luck,

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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JE: That's correct. It's rather draconian but that's the size of it. If you don't get approval for Restschuldbefrieiung your debt never dies in Germany and can pass on with your death to your heirs.

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Quick google:

 

http://www.hg.org/law-firms/Bankruptcy/Germany.html

 

Edit: These German laws seem a little grim? Not much incentive to get back on your feet if you have this stuff hanging over you for 7 years. Actually I think this is just plain WRONG. I can appreciate the moral stance if people have been reckless and spent money on drugs and holidays - but if you are a small business owner and fall on your arse - with laws like this you will never get back on your feet.

 

MY CONCLUSION:

 

For crissakes NEVER run a Gbr or run as a sole trader in this country. It is legal to trade using a £1 UK Limited company over here - so do it. I don't care if you are doing translation work, or selling christmas cards - NEVER run a business as a sole trader with wicked laws like that hanging over you.

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JohnnyE: that bankruptcy law is actually quite an improvement against the legal situation a couple of year ago. Before that, you were stuck with your debts FOREVER. I remember a friend and colleague of my father's who in the late 60s became victim of a scam and had to declare "Offenbarungseid" which meant you declare that you can not pay your debts. This OE was also time limited, but your creditor could force you to renew it or pay your debts everytime the period ended. His creditors made him renew the OE until, as I remember it, the mid 80s or so.

 

but compared to how things are handled in AngloAmerican countries, this is of course still a joke, I totally agree. the thing is in Germany that you are socially and economically stigmatized when you declare bankruptcy and people/society don't expect you to make it back to the top. Which is why (in parts, there are certainly other reasons there, too) Germany in toto has become such a risk-adverse society...

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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JE: I partially agree with you. Germany doesn't see that driving "failed" business people to the wall often only results in the loss of good experience.

There used to be a saying in in Britain that the best businessmen/women had been bust at least once.

 

Where I'm more wary is the advice to take on the UK Ltd. It has some potential benefits but an awful lot of pitfalls too, especially where dealing on time with Companies House is concerned.

Where I can see good benefit but it's only applicable to a handful of businesses, is in the different turnover limits for obligatory registration for VAT and the VAT rate itself.

UK Limit = €67000 / 15% Germany limit = 17500 / 19%

 

So, if I was running a small online selling operation from UK, I'd register as a sole trader in UK and set up in Germany a Nichtselbständige Zweigniederlassung (non - independent subsidiary) where I employ myself as manager on a minimal salary.

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TT threads on debt.

Get professional advice and you may be able to avoid bankruptcy - stuck your postcode into Schuldnerberatung.de for example and you will get addresses for debt counsellors, some of whom don't even charge (e.g. Innere Mission in Munich, certain trade union centres, Verbraucherzentrale...). You may be able to restructure your debt (lower payments over a longer term, payment holidays, converting an overdraft into a fixed loan...), but you will probably need help doing so.

Even asking for help at the Arbeitsamt might bring up good contacts.

Good luck.

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Where I'm more wary is the advice to take on the UK Ltd. It has some potential benefits but an awful lot of pitfalls too, especially where dealing on time with Companies House is concerned.

Where I can see good benefit but it's only applicable to a handful of businesses, is in the different turnover limits for obligatory registration for VAT and the VAT rate itself.

UK Limit = €67000 / 15% Germany limit = 17500 / 19%

Pitfalls??? Dealing on time with Companies House is a complete non-event. You have 10 months to file figures and if a small company you just sign to submit a TOTAL EXEMPTION FULL to submit cut down figures - basically a single A4 sheet of balance sheet will shut them up. You can apply for an extension as well to delay this. If you are late filing you get fined £100 - big deal. If really really late they just strike off the company. Total non-event and less work than a sole trader here anyways - plus a shitload of protection.

 

VAT registration and VAT rates is a total red herring in this discussion. If you are trading here and selling into Germany - you need to be VAT registered here and pay the going rates etc. Likewise if trading here and selling into the UK you need to be registered for UK VAT as well. But even with a weird situation (e.g. selling from here into the UK below UK threshold) - SAME RULES ON VAT APPLY FOR LTD OR SOLE TRADER - so its irrelevant.

 

but...

 

With laws like this, I don't care how small and crap your business starts or how "safe" you think your sector. I personally think you would be bonkers to be a sole trader here.

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German bankruptcy laws are one of the very reasons why I do start to bristle whenever I do hear some excessively paid air head banging on on TV that Germans should be more willing to to start their own business. They are supposed to start a small business but the risk is supposed to be all their own. There is a statue of limitation of 30 years but that´s obviously almost "forever". You´ll have served a "life" sentence for murder sooner than getting out of your debt.

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I thought if you run a GmbH or mini-GmbH and it goes to hell, your private finances are not affected.

 

Is Verona's husband poor after his mp3 player fiasco? I don't think so.

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I thought if you run a GmbH or mini-GmbH and it goes to hell, your private finances are not affected.

Correct...ish.

 

I understand that the Germans can still chase your arse pretty hard as a Director of a busted Gmbh. Can get messy, although in essence your private finances are indeed separate.

 

Hence why you use the UK Ltd. Depends which side of the fence you are sitting - but UK Ltd company Directors do not usually get hounded very much when things go to ratshit. That may be good or bad depending on your viewpoint, but certainly good if you are the Director in question.

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I thought if you run a GmbH or mini-GmbH and it goes to hell, your private finances are not affected.

the protection a GMBH offers is quite slim, actually (the new mini-GmbH might be different, though). First of all, if you are the director (Geschäftsführer) you are liable with everything you own for thousand of little pitfalls. The one most cherrished is "Konkurs-Verschleppung", delaying of filing for bankruptcy. The rules when you normally owuld have to file for bankcruptcy are sooo from another universe that everybody who stears his company through bad times and does not fold when the first little problems occur is already guilty as charged. About 90% of German companies are continoulsy guilty of that without even knowing (which is why one should not head much attention when after a case of bankcruptcy the press reports that charges have been made for "Untreue" and "Konkursvergehen" - happens every (!) time to anyone.

I'd rather have a Ltd. instead because some of the most stupidest German insolvency law regulations may not be used upon a Ltd. But of course if you or the company you are a director of owes VAT or Lohnsteuer, you are still facing criminal charges for "Untreue" since the money was never yours to keep anyway.

Newest gimmic I have noticed in the press that they try to go after the owner of a GmbH even with the accusation of having squandered company money for own means and thus having withheld the creditors their dues.

No, German laws indeed do nothing to encourage free enterprise...

 

Cheerio

I am a professional independent insurance broker, financial adviser, and authorised advertiser. Contact me.
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No bank will give credit to a small GmbH anyway. They will always insist on personal liability of the owner himself. Verona´s husband isn´t going to be poor as Verona herself isn´t liable for his debt.

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actually (the new mini-GmbH might be different, though).

Nahhhhh. Seems to be almost identical actually - just makes it a wee bit cheaper to get started, but all the evil shit is basically the same.

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... everybody who stears his company through bad times and does not fold when the first little problems occur is already guilty as charged.

There has been a small but significant change of law in Oct 2008 that went mostly unnoticed:

For the period until 31.12.2010 a GmbH director who doesnt file for bankruptcy, although his company is overextended, will be much harder to blame. (see §19(2)InsO)

Normally if your company is overextended (überschuldet) you need to file for bankruptcy. In 2009 and 2010 though, you dont need to, if the continuance of your business (die Fortführung des Unternehmens) seems likely. A director who cant come up with some paper that proves that the continuance of his company at that time "seemed likely", deserves to be punished. ;)

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Pitfalls??? Dealing on time with Companies House is a complete non-event. You have 10 months to file figures and if a small company you just sign to submit a TOTAL EXEMPTION FULL to submit cut down figures - basically a single A4 sheet of balance sheet will shut them up. You can apply for an extension as well to delay this. If you are late filing you get fined £100 - big deal. If really really late they just strike off the company. Total non-event and less work than a sole trader here anyways - plus a shitload of protection.

I'm afraid I can only speak from, admittedly second-hand, experience of a number of German small businesses who rushed to get under the "UK Ltd" safety net and away from the draconian German system. A number of whom have now abandoned their UK adventure for various reasons. While I can accept that for you this situation would present no problem, for them it was bad experience.

 

<< VAT registration and VAT rates is a total red herring in this discussion. >>

 

You haven't grasped the point but it's not worth discussing as I said it was only of interest to a small number of business models.

 

<< With laws like this, I don't care how small and crap your business starts or how "safe" you think your sector. I personally think you would be bonkers to be a sole trader here. >>

 

I'm sure you're right. Convincing Germany is the problem.

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