Bankruptcy and insolvency: two terms used when a company goes broke. But do they mean the same thing, or are many people simply mixing them up? In fact, in Germany today the term insolvency has simply replaced bankruptcy. In an insolvency, the person loses their assets and is debt-free after six years. With bankruptcy, by contrast, you lose your assets, but the debts remain even after six years.

What exactly does bankruptcy mean?

A company can quickly get itself into a bad financial situation, e.g. through a wrong decision. A company has to pay bills, salaries and much more; if that is no longer possible, the company is, in the end, bankrupt. This is referred to as the company's inability to pay. As soon as such a state occurs, it is passed on to the competent local court. All of the company's creditors share out the debtor's remaining money. This is also called the bankruptcy estate. All creditors must be served equally. A judge officially confirms the company's bankruptcy, and the firm is thereby officially declared unable to pay.

What is meant by insolvency?

As already mentioned, insolvency resembles bankruptcy. Here, too, we are talking about a company's inability to pay. Employees' wages and the company's open bills can no longer be paid. In this case, insolvency proceedings can be filed. The court then provides the company with an insolvency administrator to wind up open business. After that you enter the good-conduct period and, after a certain time, are entitled to the so-called discharge of remaining debts. Insolvency can, however, affect not only companies. A private individual or consumer can also have the chance to file for consumer insolvency. For many over-indebted people this is the last resort for starting a life without debt.

Other important things

When is bankruptcy filed?
An application to open proceedings must be filed no later than three weeks after inability to pay or over-indebtedness occurs.

What procedural costs can the company expect?
The whole procedure incurs court costs as well as insolvency administration costs. Insolvency proceedings are court proceedings in which the debtor's solvency is restored or the creditors are satisfied.

What requirements do I need to meet for a discharge of debts?
To obtain a discharge of debts, after 3 years you must repay at least 35% of the liabilities while also paying the procedural costs. If the procedural costs have been paid after five years, the so-called good-conduct period may be ended early.

What is insolvency delay?
This means that the managing director delays filing the application to open proceedings beyond the point at which the company is ripe for insolvency.