11 Pieces of Advice On Bankruptcy

The bankruptcy procedure for entrepreneurs is the standard bankruptcy. It gives self-employed people (entrepreneurs and freelancers) the opportunity to get rid of their debts. Attorney Debt Fighters works for the same cause to get self-employed people get out of this situation. However, it means that you can continue your self-employed activity and lose all debts within 3, 5 or a maximum of 6 years.

If you want to take this chance, here are 11 tips to keep in mind:

1st tip: Check your financial situation

Before the final decision for a standard bankruptcy comes the fundamental insight and realization that the situation in which you find yourself is no longer acceptable. This is especially the case if enforcement proceedings are already pending against you. Then it is urgently time to take action.

This extraordinary stress situation can be noticeably improved by a regular bankruptcy. Many debtors do not even know that you will have to pay significantly less to the creditors during bankruptcy proceedings. The garnishment table drawn up by the legislator does not apply to standard insolvency, but a so-called attachment exemption is also calculated in standard insolvency – based on a fictitious attachment limit – which remains with you as the bankruptcy debtor in any case and cannot be attached by the trustee.

This allowance can be significantly higher than the amount you currently have while you are still trying to settle at least part of your creditors’ claims. The security of the garnishment allowance represents a considerable psychological relief and should be taken into account when making your decision – whether to bankruptcy or not.

I advise you: do not spend all of your income on installment payments!

Take a critical and realistic look at your own situation and ask yourself:

1. “How long can I endure the existing situation financially and psychologically?”

2. “Will I be debt free during this time?”

If you answered “No” to the last question, then initiating bankruptcy is usually the right solution.

Tip 2: Reconsider an out-of-court settlement

One way of avoiding bankruptcy is to reach an out-of-court settlement with your creditors. You do not need any bankruptcy proceedings and clarify your debt situation in a private contract without having to call in a trustee.

We support you in the preparation and implementation of the out-of-court settlement and prepare the offer for you. The prerequisite, however, is that you have the appropriate financial resources – possibly with the help of a relative or other close person – in order to be able to make an attractive offer to the creditors. The creditors should be convinced that they are better off if they consent to the settlement offer than in the case of bankruptcy.

When it comes to the question of the out-of-court settlement, I advise you to examine your financial situation critically and to consider whether you would be able to offer the creditors a partial amount.

My tip: call us free of charge so that we can decide together whether an out-of-court settlement or bankruptcy is a better solution for you.

3rd tip: keep your independence in bankruptcy

If you do not give up your self-employment despite bankruptcy and would like to remain self-employed during the bankruptcy, there are three basic options:

  1. You can go into regular bankruptcy during ongoing business operations
  2. You set up a rescue company
  3. You hire a restructuring advisor or an insolvency attorney and work out an insolvency in self-administration with an insolvency plan

It depends on the individual situation of your company which of these three options is the right one for you in order to maintain your independence in bankruptcy.

First variant: with ongoing business into bankruptcy

The first variant is certainly the simplest. However, there is a risk here that the insolvency administrator will not approve the business operations or put you under tremendous pressure until then – this could mean the end of your company. For the insolvency administrator, ceasing operations and selling off the entire facility is often the easiest route.

Second variant: founding a rescue company

We recommend the second option – the establishment of a rescue company – if you do not want to take this risk. The time required to prepare for the rescue company is roughly the same as that which we will need to prepare for your regular bankruptcy – it is around three months.

We suggest the following procedure: You should entrust a person you trust with the establishment of the rescue company as early as possible. The rescue company then founded will employ you as an employee. In your new position as an employee, you then apply for standard bankruptcy. In this way you can maintain your business and “save” it from the insolvency administrator. This approach has some legal hurdles and should only be carried out with professional support.

4. Tip: Avoid attachments by creditors

Attachments shortly before bankruptcy can mean the end of the company. It is therefore important that, while we are preparing everything for the optimal course of a standard bankruptcy, seizures are avoided.

How freelancers or sole proprietors can avoid garnishments:

This is easy with sole proprietorships or freelancers: you should open a new account with another bank to protect yourself. This should be in your own name, not that of your company. There you transfer your credit balance and inform your business partners and customers of the new account details. The creditors will not gain knowledge of this account until the next affidavit.

Protective shield proceedings at larger companies

For larger companies, it is advisable to use the so-called protective shield procedure. The protective shield procedure has existed since 2012 and grants the company protection from foreclosure for a maximum of 3 months. During this time, the debtor has the opportunity to work out a reorganization and bankruptcy plan together with an experienced insolvency advisor, so that this can then be submitted to the creditors for approval. If the bankruptcy plan is accepted, the bankruptcy proceedings are carried out and the company is quickly discharged.

This protective shield procedure is particularly suitable for companies that are basically healthy, but can no longer operate due to the contaminated sites.

My tip: Let us advise you on these legally complex solutions.

Tip 5: Create a reserve to cover the operating and living costs at the beginning of the bankruptcy

You should create a financial reserve so that you can secure your existence and livelihood in the time between filing your application and opening insolvency proceedings. The newly opened account, which should remain unknown to creditors, allows you to separate the incoming funds from your debts. You can then earn a living for the two to three months before the proceedings are opened.

Tip 6: Stop making payments to creditors

Do not make any further payments to your creditors! Aborting all payments to all creditors – both business and private – is another important step in addition to opening the new account and securing your assets.

This is legally unobjectionable and has been confirmed by a court (e.g. OLG Oldenburg ZVI 2003, 483). You should only pay to the creditors who ensure your life support, such as your landlord, your electricity supplier, your private Internet provider or similar.

The attachment attempts will cease as soon as the standard bankruptcy proceedings are opened. From this point in time, the seizure protection takes effect and all foreclosures become ineffective (§§ 88, 89).

Even beforehand – once they know that the proceedings have been prepared – many creditors abandon seizure measures, as these may be retrospectively ineffective under certain circumstances.

What you should definitely continue to pay are the rent for your apartment, telecommunications services, the energy supplier and insurance that is important to you; in other words, all the bills that are important for your future needs. If you do not continue to pay this, the contracts can be terminated and you can no longer receive the benefits you need for life.

7. Tip: secure your assets before realizing them

In addition to opening a new account and setting up a rescue company, there are other steps you can take to secure your livelihood in the time leading up to the bankruptcy proceedings.

Please note that it is not allowed to disguise assets in bankruptcy proceedings. Please keep in mind that your primary concern is a complete debt relief.

Of course, you can use your assets for your livelihood and in this way also spend them completely. Don’t be wasteful, however. You should be “moderate” with your assets and not significantly exceed attachment limits.

You should be particularly careful when it comes to the removal of property or assets from your business. Because, on the one hand, many company objects sometimes do not belong to you at all – they are often only leased or are in third-party security. On the other hand, incorrect actions in this area can be challenged; an inadmissible withdrawal from your company can therefore be contested and reversed under certain circumstances (§§ 129 ff.).

Such a challenge harms you and the recipient of the benefit. We therefore strongly advise against transferring money from your business or private account to someone close to you. Related persons in this sense are not only your spouse or life partner, but also relatives and people in your domestic community (Section 138).

You can only make cash payments of manageable amounts shortly before the insolvency proceedings if you want to withdraw money and thus secure your private assets (Section 142).

My tip: keep your goal – the discharge of residual debt – in mind and don’t waste your wealth. However, you are allowed to spend the money in moderation!

8. Tip: Do not create any further debts

Do not enter into new liabilities unless you know for certain that you can meet them. Otherwise, there is a risk that your fraud becomes serious and tough for you.

Use the money received to make the expenses you need for living in the new account. You should not enter into further liabilities such as the conclusion of new loan agreements, further overdrafts or the purchase of goods that are not paid for – you will be able to cover your living needs by stopping all payments to the creditors.

9. Tip: Do not transfer any assets to relatives

Many debtors transfer funds to friends or relatives’ accounts before bankruptcy begins. Don’t do that!

On the one hand, this is not permitted and you may face criminal penalties. On the other hand, this can endanger your bankruptcy. Such processes can usually also be challenged retrospectively within 4 years, so that you can also endanger your loved ones.

My tip: Please refrain from sending transfers to friends and relatives.

Tip 10: With a bankruptcy plan, you can get debt-free within a year

With the insolvency plan in July 2014, the legislature created the opportunity to quickly pay off debt with the reform of the insolvency procedure. The insolvency plan procedure leads to an early discharge of residual debt, which can occur after one year. In this way you can regain your ability to act economically very quickly.

If you have a “patron” who is willing to provide your creditors with a certain amount for a one-off payment, you can be given early debt through an insolvency plan. If the one-off payment is ready, we will prepare the insolvency plan for you in consultation with the creditors, the insolvency court and the insolvency administrator. There will be a vote on the plan. The bankruptcy plan is adopted with a majority of the creditors present. In doing so, we will know that a particularly small one-time payment may be due.

Tip 11. Tip: Get legal assistance

It is imperative that you get qualified support before regular insolvency proceedings. We advise you on all legal issues and comprehensively assess your debt relief prospects. Above all, we precisely define your further course of action from the initiation of insolvency proceedings to debt discharge.

We advise you extensively on all options to keep the business despite the bankruptcy, as well as on all other measures to safeguard assets.

Our telephone consultation is available to you in the form of a free initial consultation. Depending on your case, we will create your individual debt relief plan for you. This means that you always know how to strategically approach your application.

My tip: Use our free telephone consultation for a non-binding initial consultation!