Bankruptcy, insolvency, going bust, being broke - four words for one and the same very unpleasant and difficult event. They mean that a debtor can no longer meet payment obligations and can no longer pay creditors. This debtor can be a company as well as a private individual, and the creditors can likewise be companies, other people or even the state. A distinction is made between

  • acute inability to pay
  • imminent inability to pay
  • over-indebtedness.

What is bankruptcy, literally speaking?

Bankruptcies and insolvencies of course existed in antiquity as well. The German term for bankruptcy (Konkurs, from concursus) comes from ancient Latin and translates roughly as "running together". It comes from the fact that in ancient Rome, when such an event occurred, the creditors ran together to share whatever the debtor still owned. The term insolvency (insolvens) also comes from Latin and means "unable to be resolved". This refers to the fact that promissory notes held by the creditor could no longer be redeemed.

What is bankruptcy today from a legal standpoint?

Today the procedure for bankruptcy or insolvency is precisely regulated by law. Laws differ from country to country, although insolvency law in Europe is, with few exceptions, very similar and comparable. The aim of insolvency law is either to restore the debtor's solvency, or at least to ensure an orderly procedure that does justice to creditors and debtors alike. Unlike enforcement, which benefits only one of the creditors, the aim is for the bankruptcy estate (that is, whatever realizable assets the debtor owns) to be divided in equal parts among the creditors. At the same time, the debtor should keep the chance of a debt-free fresh start. The German Insolvency Code sets out exactly how to proceed in individual insolvency cases. A distinction is made between

  • standard insolvency proceedings
  • personal or consumer insolvency proceedings
  • estate insolvency proceedings

What are standard insolvency proceedings?
They apply in practice only to companies and other legal entities as well as to self-employed people and freelancers, and are filed with the insolvency court either by the debtor or by the creditors. An insolvency administrator is appointed to carry them out and gets access to all business records. At the end, a creditors' meeting decides whether the company in question can be restructured or liquidated.

What are personal insolvency proceedings?
As a rule, only natural persons can file for personal insolvency. In personal insolvency proceedings there is no insolvency administrator, only a trustee and advisor (for example a debt counseling center or attorney) who determines the exact amount of debt and negotiates with the creditors. If an out-of-court settlement with them is not possible, the debtor keeps only the income that cannot be garnished and must start paying off debts with the rest of their income. After a time-limited good-conduct period, the remaining debts are then forgiven.