Everyone has heard the term bankruptcy. But what is it, actually?
Other words for bankruptcy are: insolvency or financial ruin, as well as inability to pay, or simply: being broke.
As for the bankruptcy definition, it should be said that companies can no longer pay either their bills or their employees' salaries.
It is important to add to the bankruptcy definition that, in Germany, this was a procedure that became outdated on 12/31/1999. The newer bankruptcy definition was replaced by the German Insolvency Code (Insolvenzordnung).
The company has to file for the opening of insolvency proceedings. This is also possible when insolvency is imminent. Under the old law, that was only possible once bankruptcy had occurred (over-indebtedness and inability to pay).

Advantages of bankruptcy/insolvency

  • -No more fear of enforcement measures by your creditors (once insolvency proceedings are opened, the company is protected from them)
  • By filing for insolvency, the debtor regains the initiative to sort out the financial situation
  • Employees of an insolvent company whose salaries can no longer be paid can receive insolvency pay from the employment agency (formerly also called bankruptcy compensation)
  • the debtor is relieved and can breathe again
  • The tax office and social insurance are no longer favored; their claims are treated the same as insolvency claims from other creditors (under the Insolvency Code, which belongs to the bankruptcy definition, insolvency creditors are treated equally)
  • Debtors do not lose their own home (it is possible to reach agreement with most banks and the insolvency administrator to forgo enforcement measures)
  • A so-called court-supervised debt settlement procedure, a kind of safety parachute, part of an insolvency plan procedure.
  • Under § 213 InsO, this procedure makes an early discharge of remaining debts possible, i.e. a fast and efficient debt settlement with state assistance comes into consideration.
  • Important: it can only be initiated in opened insolvency proceedings
  • thanks to the legal reform (spring 2014), it is possible to obtain the discharge of remaining debts as early as 3 years after the proceedings are opened. This attractive offer only applies if the debtor has paid 35% of the debts and procedural costs by then. The following are taken into account:-> amounts the debtor has paid so far (including what has already been released for wage garnishment), contributions from third parties

Why does it usually take so long before a company starts insolvency proceedings?

  • Many debtors are simply afraid. They don't know what is coming. The emotional, often psychological pressure already brings them to their knees. Many also have the wrong idea.
  • Once debtors do decide to go ahead, they often find that such a procedure isn't so bad at all.
  • They often even regret not having filed much earlier.
  • That said, there are also disadvantages to insolvency proceedings, which a text on the bankruptcy definition must not leave out, one of which is:
  • A negative SCHUFA entry (Germany's credit bureau), meaning you won't get a loan in Germany for about 10 years, which in such a predicament, even before the proceedings, you wouldn't get anyway.)

So it is worth getting help.