Self-employed despite bankruptcy

The most important things at a glance

  • Self-employed people cannot apply for personal insolvency , but must go through standard insolvency proceedings . The business should therefore not be deregistered in order to avoid the more complicated consumer insolvency proceedings (also known as personal insolvency).
  • There is no "bar" for self-employed people who have incurred debts with their company or have filed for bankruptcy. Every debtor is entitled to take up a new self-employed/commercial activity during the insolvency proceedings.
  • What is needed is a plan for debt settlement , for preserving the insolvency estate despite debts and, ideally, professional support.
  • The risk of delaying insolvency is generally not present for self-employed persons , as only corporations have to file for insolvency within a few weeks.

How does insolvency occur during self-employment?

According to insolvency law, one of the following reasons must exist for a self-employed person to become insolvent:

  • insolvency
  • Imminent insolvency
  • over-indebtedness

Some advantages for debtors if self-employment can be continued:

The insolvency proceedings only last three years and completely relieve you of the remaining debt, but you can continue to be self-employed during this time. However, this only makes sense if you generate sufficient surpluses.

The debtor's home is then protected from seizure, and the inventory is usually protected as well. A car or vehicles required for the performance of the activity that are usually needed to continue the professional or commercial activity are also exempt from seizure.

If seizure is imminent, the account should be cleared and transferred:

Granted loans are available there and self-employed people can transfer their credit to another account . Overdrafts should be strictly avoided.

It is essential to open a credit account at another bank .

Opening a credit-based business account at another bank helps to process payments during insolvency proceedings. This should be opened at another bank as quickly as possible in the event of insolvency . This is because the bank will, as an insolvency creditor, block the business accounts with debit balances at the time of notification of insolvency.

A seizure protection account (P-account) should only be set up in the first step if necessary . First, a normal "credit account" is required. The bank would probably reject this if you applied for a new account combined with a seizure protection account (P-account). Only after the credit account has been successfully opened should you apply for conversion to a P-account.

The cash supply is guaranteed if the bank account is managed as a seizure protection account (P-account) . The debtor's health insurance may also continue to exist and benefits may not be withheld due to arrears.

release during insolvency proceedings

If a debtor continues to be self-employed during the ongoing insolvency proceedings, the insolvency administrator is responsible for all newly arising business liabilities (= debts) . This is particularly relevant in the catering industry and other businesses where services are provided directly in exchange for cash. This also applies if a business has few employees, so it includes small businesses.

If the insolvency administrator is not able to permanently monitor the debtor, continuing the business in insolvency is associated with a high risk for him . In such cases, he will therefore opt for release.

The commercial or self-employed activity is thus continued outside of the insolvency proceedings .
Enforcement measures are not possible due to existing liabilities. In principle, the debtor is entitled to any business profits.

The release has the following consequences:

  1. Foreclosures are not possible due to old debts.
  2. The self-employed activity can be continued outside of the insolvency proceedings.
  3. In principle, the debtor is allowed to keep the profits from the self-employed activity .
  4. Since the debtor bears the financial risk of continuing the business after the release, the legislator has stipulated that all profits from this released activity remain with the debtor and do not have to be paid to the insolvency administrator.

Important – If insolvency occurs, payments made to friends or family will be tracked:

Payments to people close to you may be challenged by the insolvency administrator if no corresponding consideration was given. The so-called “gift challenge” can occur due to payments made and financial transactions (by the debtor) via a third party account .

Who bears the risk in the event of self-employment and insolvency?

Entrepreneur balances risk on the staircase to success

Since the debtor bears the financial risk of continuing the business , the legislator has decided that all profits from the released commercial or self-employed activity remain with the debtor and do not have to be paid to the insolvency administrator. However, after a release, the debtor bears the financial risks and is liable for new debts. Therefore, the insolvency administrator will most likely agree to a release.

Debtors should provide an affidavit (also called a financial statement) if necessary.

If a court orders debtors to provide information about their assets, this request should be complied with and a copy should be retained. The information should be true and complete and liabilities and all information relevant to the insolvency should be disclosed.

Creditors must be served regularly

However, despite the financial freedom, such as making investments, the entrepreneur or self-employed person is obliged to regularly transfer the agreed amount to the insolvency administrator . This is then distributed by the insolvency administrator to the creditor(s) .

You have the option of remaining self-employed or giving up your self-employment and looking for a job. Alternatively, you can start a new self-employment business. Regardless of the option you choose, creditors cannot take action against the debtor, which means that the ongoing insolvency proceedings do not affect your existing self-employment.

In practice, this means that business owners or self-employed people who remain self-employed or continue their business within the framework of the insolvency proceedings can remain free of old debts . This gives the company a "fresh start" and allows them to continue to operate as entrepreneurs without any burden.

A special case is social security payments to employees and self-employed persons:

The employees should be released from work before the day on which insolvency occurs . This is a so-called interruption notification, after which no more wages are paid. Employee contributions to social insurance should still be paid continuously until the employees' employment relationships are finally terminated.

All accounting matters should be properly put in place:

The accounting , including that of the spouses , should definitely be done in a sorted manner with separate assessment . This is because the tax debts are included in the residual debt relief. The tax return must be submitted on time , otherwise the tax debts incurred in the event of insolvency will be excluded from the residual debt relief.

Tax debts are often a major problem in indebtedness , as tax assessments, for example, pile up even more debt.

If there is still VAT outstanding, this should definitely be settled, as tax authorities attach great importance to due diligence in this regard and this can later have a negative impact on possible agreements in the course of a debt settlement plan.

The tax authorities have high requirements , which is why, from a certain point onwards, only discharge of residual debt can save you from further indebtedness through tax debts.

However, the debt settlement plan must be approved due to the need for remission. If there are no reasons for refusal that speak against it, insolvency and the first step towards discharge of residual debt can be initiated.

Can a business license required for self-employment simply be withdrawn and the business activity thus prohibited?

The importance of the business license and the business prohibition procedure:

The business license is crucial for self-employed activities , but can be withdrawn under certain circumstances. This happens if the trade office considers the trader to be too unreliable and needs to protect the general public or the company's employees from their actions. A business prohibition procedure can lead to a partial or complete withdrawal of the business license .

Possible reasons for the withdrawal of the business license:

Various factors, such as tax unreliability, non-compliance with social security obligations or financial difficulties , can lead to a business ban. Financial problems and disorganized asset circumstances are often reasons for withdrawal .

The possibilities to avoid a business ban:

There are various ways to prevent a business ban. These include out-of-court settlement negotiations with creditors and the initiation of insolvency proceedings . After insolvency proceedings have been opened, regulations on a business ban due to disorganized financial circumstances do not apply for the time being.

The legal basis is the “ blocking effect of Section 12 of the German Trade Regulation Act ”.

Conclusion on the business ban:

There are ways to prevent a business ban , such as settlement negotiations or the initiation of insolvency proceedings . The best course of action depends on the individual situation and should be clarified through professional legal advice.

Under no circumstances should you simply register a new business without consulting the responsible insolvency administrator.

Can a small business be registered during personal bankruptcy?

Yes, it is permitted to register a small business both during consumer insolvency (private insolvency) and during standard insolvency proceedings . How you go about this depends on which stage of the insolvency proceedings you are currently in.

If insolvency proceedings are still ongoing, you should obtain permission from the insolvency administrator or trustee in accordance with Section 35 Paragraph 2 of the Insolvency Code before setting up a small business .

If the debtor is already self-employed or plans to become self-employed soon, the insolvency administrator must state whether income from this activity is part of the insolvency estate and whether claims arising from it can be asserted in the insolvency proceedings.

After the insolvency proceedings have been concluded , in the so-called good conduct phase , permission from the insolvency administrator or trustee is no longer required. The debtor can then either pursue regular employment or start a self-employed activity such as a small business.

However, if you are self-employed, you must ensure that, by making payments to the trustee, the creditors of the insolvency are treated as if you had received a reasonable salary from an employment relationship .

Supplement - The attachment table for self-employed persons & tradespeople:

Every euro that goes through the 4,573.10 euros can be seized 100 percent. For these very specific seizures of self-employment, it is highly recommended to contact a state-recognized and certified debt and insolvency advisor .

The following attachment limits are currently valid (rounded).

Only when these limits are exceeded may seizure take place.

WITHOUT maintenance obligations , this currently amounts to €1,409.99 attachment limit . The entire table on the attachment exemption amount can be found here.

In the event of special circumstances or if there is evidence of a greater need, these limits may even be increased. Provided the debtor requests this. You can find further details on our page on the exemption from seizure.

How can self-employed people protect their retirement provisions during insolvency?

In the past, retirement provisions (often in the form of capital life insurance or private pension insurance) could be realised by the insolvency administrator and completely seized and distributed to creditors .

The new regulation according to § 851 c ZPO protects the self-employed. The protection against seizure for capital and life insurance, which often make up a large part of retirement provision, is significantly improved.

However, there are conditions for the seizure protection of pension plans

  • The protection against seizure is limited to pension capital that is irrevocably tied up in the aforementioned types of contracts for the purpose of retirement provision.
  • Further claims which would normally be contractually granted for financing or other use may not be asserted during insolvency.
  • The amount of pension capital protected from seizure depends on the age of the beneficiary and is therefore limited.
  • The benefits of the capital tied up in contracts for retirement provision may only be paid out when the pension is paid.

Another important aspect that many self-employed people underestimate is mental stability and stress prevention

Financial problems, which can threaten the entire existence of self-employed people, can of course lead to frequent stressful situations and the feeling of being overwhelmed .

If self-employed people feel that the responsibility and pressure that comes with making many quick decisions is becoming an unbearable burden, caution is advised.
In the worst case scenario, long-term stress can result in burnout. In order to make good progress with all of the processes mentioned, you should ensure that you maintain a balance between tension and relaxation.

Tips from experts for self-employed people who have to deal with a lot of stress:

  • Working with certified, trustworthy psychologists, coaches or trainers who can help you stay balanced despite stress . Techniques and tips for regeneration and a plan for hobbies and activities that recharge your energy. Acute techniques derived from autogenic training such as progressive muscle relaxation or breathing techniques can also help.
  • Divide the “energy cake” anew every day of the week so that self-employed people can estimate how much time they should spend on dealing with the enormous task of managing their debts (burden) and to see whether important things are neglected despite being self-employed. This could include spending time with the family or doing some sport (relaxation). The desired “energy cake” should at least be reflected in the plan in some way.
  • Without enough free time and time off, this stressful phase will be difficult to manage , which is why it is important to ensure that you have enough free time. Self-employed entrepreneurs should therefore stick to the "regeneration plans" they have drawn up with a lot of discipline.

Source: https://www.gesundheitszentrum-selbstaendige.at/service/tipps-news/artikel/stress-und-burnout-praevention

The crisis as an opportunity and possibility to avoid future mistakes:

A lot of entrepreneurial experience can be gained from a crisis. Self-employed entrepreneurs have learned a lot about communication, finances and stress management after this difficult time.
The mistakes that led to the company crisis strengthen entrepreneurial know-how and teach what was done wrong.

Conclusion on self-employment despite or during insolvency:

It is a complex issue. But there is always the possibility that self-employed entrepreneurial activity can be continued and savings can be retained.

To do this, however, you should contact a professional debt counseling agency and coordinate well with creditors and insolvency administrators.

Communication, transparency and entrepreneurial skills are essential to have a fresh and, above all, successful start despite insolvency.

How we support you in insolvency - For the self-employed & founders

The SIC Debtor Insolvency Center e. V. is there for you. With us you will receive a certified contact person with a lot of experience and the necessary qualifications who will support you on your way through insolvency or can even help to avoid them .
With no waiting times and good telephone accessibility , you benefit from comprehensive support that goes beyond pure bureaucracy. You also no longer have to open your letters. Simply send your mail directly to us. Our consultants will sort the mail for you and help you to get an overview of the situation again . You will receive an orderly overview from us by post or other means.

All necessary downloads & forms on the subject of insolvency can be found here

FAQ for "Self-employed despite insolvency"

Self-employed and bankrupt: what happens now?

1. Financial inventory:

Record all debts, outstanding bills and your financial resources. Make a list of all creditors and their claims.

2. Get advice:

Seek professional help from a bankruptcy attorney or debt counselor to discuss your options and develop a clear plan.

3. File for insolvency:

If debt restructuring or an out-of-court settlement is not possible, file an application for insolvency at the responsible district court. Contact us now!

4. Active communication with creditors: Inform your creditors about your situation and the ongoing insolvency process. Transparency can help to better manage the situation.

5. Plan a new beginning:

Use the insolvency phase to educate yourself, develop new business strategies and prepare for a possible new start. Think about how you can avoid financial difficulties in the future

When are you debt-free in the event of personal bankruptcy?

Just three years after filing for insolvency, you will be discharged of your remaining debts and will be completely debt-free!

How high is the seizure exemption amount for self-employed persons?

1,409.99 euros is exempt from seizure for self-employed persons in 2024. Only amounts above this statutory basic allowance may be seized.

Am I allowed to continue to operate a business despite insolvency?

Despite ongoing insolvency proceedings, a sole proprietor can, with the consent of the insolvency administrator, continue to be self-employed or start a new business.

Can I register a business despite ongoing insolvency?

Despite insolvency, you can continue to operate as a business provided the insolvency administrator gives you permission.

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