German insolvency proceedings normally take six years before the debtor can be granted a discharge of residual debt. If the costs incurred can be covered by the insolvency estate, i.e. the debtor is not dependent on a deferral of the procedural costs, the duration of the proceedings is reduced to 5 years. The costs to be paid are around €2000-2500. Only in special cases, if the debtor manages to settle at least 30% of the creditor claims and the costs within the first three years, in which case they are significantly higher, can early granting of the residual debt discharge and immediate termination of the proceedings after three years be considered. The details of this are controversial in practice and are handled differently by the courts.
There is always the option (since 2016 also in consumer insolvency proceedings) of submitting an insolvency plan for faster debt relief if the creditors can be offered something that they would probably not get in the normal course of proceedings.
In other European countries, insolvency proceedings until the granting of residual debt discharge are significantly shorter. The procedures in France, Luxembourg, the Netherlands and England are exemplary in this regard. In some cases, the proceedings take only one to two years until the debtor is granted residual debt discharge. Since the discharge of residual debt granted in one EU country must also be recognized in every other country, conducting proceedings abroad is and was also of interest to German debtors, even if they only had debts that originated in Germany. This has increasingly led to "insolvency tourism". However, the requirements of the individual countries have since become much stricter, particularly with regard to residence and the center of life in the country in which the proceedings are to be conducted.
For some time now, therefore, there have been discussions at EU level about harmonizing the procedures and shortening the duration of the proceedings. There were very different ideas on this. In particular, Germany and Poland have vehemently opposed any shortening of the duration of the proceedings and an associated early granting of residual debt discharge.
The EU has now issued a directive (European Restructuring and Insolvency Directive) according to which the member states must amend their procedural rules to the effect that the residual debt relief procedure may take a maximum of three years. However, this new regulation will only take effect once it has been transposed into German law by the German legislature. Consumers cannot invoke the directive directly. The directive requires transposition into national law within a period of two years. This period expires on July 17, 2021. However, the states can request a one-time extension of one year, so that the new regulation must actually be in place by July 2022 at the latest.
This raises the question for the debtor of whether to file for insolvency now and subject themselves to a 6- or 5-year procedure, or whether to wait for the new regulation and then get away with a 3-year procedure. It is possible that the debtor who waits now will overtake the debtor who acts now. Based on past experience with new legislation, it must be assumed that there will be no retroactive reduction in the duration of proceedings. It therefore depends on the legal situation at the time of the opening of the respective insolvency proceedings.
There is currently a controversial debate among experts as to whether a rapid new regulation can be expected in Germany or whether Germany will tend to exhaust the deadline as much as possible. There are good arguments for each of these opinions, but I will refrain from presenting them here.
Now, the German Minister of Justice, Christine Lambrecht, has commented on the issue and announced that the federal government is planning to implement the directive in the near future. They are particularly concerned that debtors will hold back from filing for bankruptcy and wait for the new regulation, and then, after the adjustment of the duration of the proceedings, a large number of (withheld) insolvency applications flood the courts and burden them, which then makes it difficult and jeopardizes timely and proper processing.
The Ministry of Justice is therefore considering introducing a staggered reduction in the term and thereby reducing the inequality of treatment of debtors and preventing waves of applications at certain key dates. The new three-year period should therefore only be introduced gradually and continuously. This would mean that the procedure would first be shortened to 4 years, for example, in an intermediate step, and only the applications available on a later cut-off date would then be able to use the new three-year period.
However, nothing has been finalized yet and at present no one can say exactly when and what will happen. The only certainty is that it will happen by mid-2022. So each debtor must consider and decide for themselves when to apply and what is appropriate for them and their individual situation.
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The statements represent initial information that was current for the law applicable in Germany at the time of initial publication. The legal situation may have changed since then. Furthermore, the information provided cannot replace individual advice on a specific matter. Please contact us for this purpose.