Bankruptcy of Self-Employed and Business People



Time to say goodbye to self-employment ? Of course none of the sole traders and traders want to waste even one thought on this. Nevertheless, it happens again and again that you get into financial difficulties as a self-employed.


The reasons may be different, be it, among other things, that the payment behavior of customers is bad or you do not get enough customers. Other causes of business insolvency include illness, divorce or wrong corporate governance.

Note: I am not a lawyer, in this article I only give an overview of the insolvency of self-employed and business people. It is NOT a legal advice. If you need specific help with your bankruptcy, you should consult an insolvency lawyer.

If you come as a self-employed in financial distress, you should act as quickly as possible, because the biggest mistake is still the idle to stay. If one hesitates too long, a debt adjustment or reorganization becomes more and more difficult to impossible.

Since many self-employed persons are not separated between private and business assets (the situation is different with limited liability companies), business losses can be enforced on private assets and vice versa, so that private assets are seized.

Bankruptcy can lead to commercial bans

Consumer or bankruptcy?Consumer or bankruptcy?Consumer or bankruptcy?

If traders apply for bankruptcy, can have far-reaching consequences: it threatens the withdrawal of the business license or commercial activities.

If the trader is considered to be unreliable – and this is usually the case in insolvency -, the labor inspectorate may prohibit the exercise in accordance with the provision of §35 of the Trade Regulation. In most cases, the ban on exercising equals a career ban that destroys one’s existence.

Consumer or bankruptcy?

Consumer or bankruptcy?Consumer or bankruptcy?

Consumer or private bankruptcy (simpler version of the bankruptcy procedure) can be used by self-employed persons and traders if they have less than 20 creditors and no other liabilities to potential employees (such as outstanding salary payments).

In such a case, the financial circumstances are generally considered “manageable”, but this does not always have to be the case. Even if the above-mentioned requirements for private bankruptcy apply, the financial circumstances can still be classified as unmanageable. Then the rule insolvency procedure finds its application.

Small businesses are always subject to consumer or private insolvency proceedings, even if they have more than 20 creditors.

Rule insolvency or commercial bankruptcy makes it possible for legal as well as natural persons – ie self-employed persons and business people – to permanently free themselves from their debts.

For the rule bankruptcy to be effective, certain conditions would have to be met:

  • The self-employed person must have at least 20 creditors.
  • There are claims from employment relationships against the self-employed (salary demands, unpaid social security contributions, etc.).
  • There are debts at the tax office.
  • There must be a specific reason for the petition for insolvency, such as: B. insolvency or over-indebtedness.

Anyone who registers as a self-employed personal bankruptcy or rule insolvency, is not around a lawyer advice. Although you can go to private insolvency and the free debt counseling, but it often takes quite a long time to get an appointment.

Important information on the course of a private or rule insolvency can be found on numerous websites, such as here:

  • Debt counseling: Private insolvency
  • Deductible income and residual debt exemption for self-employed
  • Course and goals of the rule insolvency

Avoid seizure of funds on account

If you are in a private or rule insolvency, you are threatened by garnishments . In order to protect at least part of his credit on his personal or business account from garnishment, one of the legislators gives the possibility to convert an account into a P-account (Pfändungsschutzkonto). Thus, a basic tax of 1133.80 euros (as of July 2017) is protected.

In the case of proof of maintenance obligations, this basic allowance may be increased.

Which account should be converted into a P-account, one should think well before, because both private and business account to protect against seizure, does not work. You have to choose one of the accounts.

Also operating expenses such as office rent, taxes or costs for employees are subject to seizure protection, since these costs are necessary for the receipt and continuance of the independent activity. If you want to include these costs in the garnishment, you must submit an application to the competent enforcement court.

Can you continue to be self-employed or become insolvent again?

Can you continue to be self-employed or become insolvent again?

Whether this is possible, I was not clear from the article. Since it is mentioned in the articles that one must expect as a trader with a trade ban, I thought, it remains only the search for a salaried job. The research has shown that in principle it is possible to maintain or resume self-employment in bankruptcy.

However, it must be ensured that the work is profitable and no new debts are accumulated. In insolvency proceedings, the insolvency administrator will decide whether to accept a new independent work as a debtor.

Duration of the bankruptcy


If you survive the so-called good behavior phase by not making any new debts and trying to reduce your existing ones, the last step is the exemption from the remaining debt.

This usually takes six years, but can sometimes be postponed to up to eight years by lawsuits.



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