Reduction of the remaining debt discharge period for consumers and the self-employed to three years finally decided!

Charlotte Miller

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As we already know that the federal government had already decided to shorten the residual debt discharge to three years. The law should come into force on October 1, 2020. The draft provided for some disadvantageous regulations for indebted persons. Following a complaint by the Federal, the legislation has passed a revised version later in 2021, where chapter 7 bankruptcy played an important role.

Now all consumers and entrepreneurs can receive the remaining debt discharge within three years and thus excuse themselves. This applies to all insolvency applications submitted after October 1st, 2020.

  1. Who can use the shortening?

The reduction in the duration of the procedure applies to consumers and self-employed people. The time limitation of the regulations for consumers until 2025 is no longer applicable.

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  1. From what point in time do the new regulations apply?

The new regulations apply retrospectively to all applications that have been made from October 1st, 2020 or are made afterwards.

  1. Which new regulations apply?

There is no minimum satisfaction rate required for the discharge of residual debt after three years. (Previously, after three years, 35% of the liabilities had to be paid and the costs of the proceedings covered.)

The obligations in the conduct of business phase (Section 295) have been expanded. Now, in addition to half of the assets that are acquired through inheritance or with consideration of a future right of inheritance, a gift and assets that are acquired as a prize in a lottery, draw or other game with the possibility of winning are to be returned to the trustee at their full value. Only occasional gifts and winnings of low value are exempt from the obligation to surrender. In addition, at the request of the debtor, the bankruptcy court can determine whether there is a surrender obligation.

The justification of inadequate liabilities within the meaning of Section 290 (1) No. 4 now represents a reason for denying the discharge of residual debt (so far, the discharge of residual debt could not be refused for this reason!).

The possibility that the bankruptcy court can refuse ex officio has been deleted. Accordingly, the application of a creditor is still required for the refusal. In practice, however, the rule is unlikely to be of any significance.

If the remaining debt is released according to the new regulations, further proceedings can only be initiated after a blocking period of 11 years in the case of new liabilities. In addition, the duration of the remaining debt discharge is extended to five years in the second procedure.

Additional rules apply to people who want to continue their work within the framework of a released self-employed activity (previously Section 35 (2)) even after the opening of the insolvency proceedings. The previous obligations to make payments to the insolvency administrator have been specified. It was determined by what time the payments are to be made. In addition, the amount to be paid can now be determined in a legally secure manner within the framework of a judicial review. Creditors can then no longer base a request for refusal on the fact that an insufficient amount has been paid that does not correspond to the possibilities, qualifications or employment history of the debtor.


  1. Are bankruptcy proceedings that have already been opened also affected?

The new regulations concern bankruptcy proceedings as of 01.10.2020 have been applied.

Bankruptcy procedures from 17/12/2019 to 09/30/2020 will be requested by the 7 November 2019 are Press release the Federal Ministry of Justice announced reduction regulations.

For all procedures v requested or the 17.12.2019 have been, it remains with the previous process time of 6 years. These can be shortened to 5 years if the procedural costs are covered and to 3 years if 35% of the liabilities and the procedural costs are covered.

  1. How can you use the new rules for quick debt relief?

If you have already commissioned debt counseling or a lawyer to initiate residual debt discharge proceedings, the application can now be submitted to the court!

For all procedures that have been applied for before or after December 17, 2019, an individual check is advisable as to whether and in what form the procedure can be ended and, if necessary, a new procedure can be initiated according to the current regulations.

Tip: Have the check carried out exclusively by a specialist in bankruptcy law so that you do not suffer any disadvantages.

Further suspension of the obligation to file for bankruptcy until December 31, 2020

On September 2nd, 2020, the federal government decided to extend the suspension of the obligation to file for insolvency only to a limited extent.

On March 16, 2020, the obligation to file for insolvency for companies damaged by the COVID-19 pandemic was suspended until September 30, 2020. The option to extend it until March 31, 2021 was already planned (read here what you as the managing director must now consider).

The Federal Government has now deliberately not exhausted the aforementioned period and only decided to extend the obligation suspension to file for bankruptcy until December 31, 2020.

When are the conditions for a further suspension of the obligation to file for bankruptcy in place?

  • The suspension of the obligation to file for bankruptcy only applies to the offense of over-indebtedness according to Section 19 (1). 
  • The over-indebtedness must continue to be due to the consequences of the spread of the COVID-19 pandemic
  • There must be no insolvency within the meaning of Section 17.

What is to be considered?

  • For the extension period until December 31, 2020, the restrictions imposed for liability risks of the managing directors, shareholders or banks that provide the company with liquid funds only apply if there is only over indebtedness.
  • If you are insolvent, you have an obligation to file for bankruptcy.

As the managing director, we recommend that you keep an updated liquidity status at all times. This is the only way to prove your solvency retrospectively in order to avoid any liability.

  • The documentation that has already been created to prove that the financial difficulties are due to the COVID19 pandemic should be stored securely together with the respectively updated liquidity planning.

Why was the suspension only until December 31, 2020?

A further extension of the suspension of the obligation to file for bankruptcy beyond December 31, 2020 is not expected to take place.

In the meantime, the Federal Ministry of Justice has submitted a draft law for the further development of restructuring and bankruptcy law. 

This draft law implements a directive of the American Parliament and the Council of June 20, 2019 on the creation of a preventive restructuring framework and measures to increase the efficiency of restructuring, insolvency and debt relief procedures.

The essential core area of ​​this legislative project is the creation of a pre-insolvency restructuring framework which, on the basis of a restructuring plan and with the approval of the majority of creditors, enables companies to be reorganized without the involvement of the insolvency courts.

The new Corporate Stabilization and Restructuring Act-StaRUG should come into force on 01.01.2021.

After the expiry of the previous measures, which have so far been able to ward off a wave of insolvencies, this is intended to provide companies in crisis situations with a restructuring instrument that does not require complex expert reports and only in exceptional cases requires the participation of courts. The companies can carry out the process on their own responsibility with the participation of certain creditors.

Tip: In case of doubt, only contact a specialist in bankruptcy law for a check so that you do not suffer any disadvantages.