⚠️ Insolvency as a self-employed person
In brief
If you as a self-employed person are over-indebted or unable to pay, the insolvency procedure depends on the scale of your economic circumstances: small, manageable cases go through the simplified consumer insolvency procedure, larger ones through the standard insolvency procedure. After a statutory period you can be released from the remaining debts (discharge of residual debt, Restschuldbefreiung). For corporations there is additionally a statutory duty to file for insolvency in good time – not for sole traders.
Step by step
- Check your situationCheck whether there is inability to pay, imminent inability to pay or over-indebtedness.
- Clarify the type of procedureClarify whether, with former or current self-employed activity, consumer insolvency or standard insolvency applies (§ 304 InsO).
- Attempt an out-of-court settlementFor consumer insolvency, an out-of-court settlement attempt with the creditors on the basis of a debt settlement plan (Schuldenbereinigungsplan), certified by a suitable body, must come first (§ 305 InsO).
- File the insolvency applicationFile the insolvency application with the responsible local court (Amtsgericht), possibly with an application for discharge of residual debt (§ 287 InsO).
- Clarify release of the activityIf self-employed activity continues, the insolvency administrator or trustee decides on releasing the activity from the insolvency estate (§ 35 para. 2 InsO).
- Wait for discharge of residual debtAfter the assignment period (Abtretungsfrist) ends, the insolvency court decides on discharge of residual debt after hearing the parties (§ 300 InsO).
Deadlines
- The assumption that debt counselling (Schuldnerberatung) is “only for private individuals” is wrong – (former) self-employed people with manageable circumstances (fewer than 20 creditors, no employee claims) also fall under the consumer insolvency procedure.
- It is a mistake to think that self-employed activity must necessarily be ended before an insolvency application – in fact the insolvency administrator decides on releasing the activity, and continuing often remains possible.
- § 15a InsO (duty to file) does not apply to sole traders or freelancers as natural persons, but only to legal entities and partnerships without a personally liable natural-person partner.
- The count of creditors under § 304 InsO (threshold “fewer than 20 creditors”) is often calculated wrongly, in particular where claims of the same creditor are split up.
- The StaRUG restructuring procedure is often considered too late: it can only be used where inability to pay is imminent, not once it has already occurred.
In depth · legal basis, figures and practice – for advisers and professionals
Standard insolvency versus consumer insolvency
§ 304 InsO provides: for natural persons without self-employed economic activity the rules on the consumer insolvency procedure apply in principle. Anyone who has carried out a self-employed economic activity (also formerly) likewise falls under it if their financial circumstances are manageable (fewer than 20 creditors) and there are no claims from employment relationships. If these conditions are not met, the more elaborate standard insolvency procedure with a mandatory insolvency administrator applies.
Discharge of residual debt
Under the Act on the further shortening of the discharge of residual debt procedure, the standard length of the assignment period has been three years permanently since 1 October 2020 instead of the former six years, regardless of a minimum quota. After the period ends the insolvency court decides on application after hearing the parties; grounds for refusal exist, among others, for breach of duties to provide information or cooperate.
Duty to file under § 15a InsO – distinction by legal form
The duty to file applies to the representative bodies of legal entities and, for certain partnerships without a personally liable natural-person partner (such as a GmbH & Co. KG), to the representatives of the company bodies. Sole traders and partnerships with a personally liable natural-person partner (e.g. a classic GbR, OHG) are not subject to this special, penalty-backed duty to file.
Out-of-court settlement attempt and StaRUG
Before a consumer insolvency application, an attempt at an out-of-court settlement with the creditors via a debt settlement plan is mandatory, certified by a suitable body. For businesses, the Stabilisierungs- und Restrukturierungsgesetz (StaRUG) has provided a pre-insolvency restructuring procedure since 1 January 2021, which makes possible, in the case of imminent inability to pay, a court-confirmed restructuring plan even against the will of individual creditors. The exact statutory text of the StaRUG was not checked in full text in the underlying research.
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