Insolvency

Insolvency means that a person or company can no longer pay its debts – it is over-indebted or unable to pay.

2 types:

1. Standard insolvency (companies):

• For the self-employed and companies
• An insolvency administrator takes control
• Goal: either restructuring or orderly winding-up
• 2024: over 22,000 corporate insolvencies in Germany – the highest level in 10 years

2. Consumer insolvency (private individuals):

• For employees, pensioners, the unemployed
• Since 2020: discharge of residual debt after just 3 years (previously 6 years!)
• An out-of-court settlement attempt is mandatory (negotiate with creditors first)
• Protection from seizure: the subsistence minimum remains protected (~€1,402/month)

Filing for insolvency:

• Mandatory for managing directors: within 3 weeks of becoming unable to pay – otherwise a criminal offence (delay in filing for insolvency!)
• For private individuals: voluntary, but often the only way out of the debt trap

Most common causes: lack of liquidity (82%), not lack of profit. Many insolvent companies were profitable – they just ran out of cash.