Consumer insolvency proceedings are a multi-stage procedure.
The first stage must be an out-of-court debt settlement procedure. This involves a serious attempt to reach an out-of-court settlement with the creditors. The attempt to reach an agreement must be based on a structured plan.
The debt settlement plan should be set out in writing. It should contain certain minimum details, without which the creditor will not be able to decide whether to approve the plan.
When drawing up the plan, it can be useful to consult a suitable body from the outset. This is because a prerequisite for the further implementation of the court proceedings is that a recognized advice centre confirms the failure of the debt settlement plan.
Only if the out-of-court debt settlement procedure has not led to the desired success can the second stage be taken to court. The court proceedings also take place in several stages and begin with the debtor filing for insolvency.
The application to open consumer insolvency proceedings must be accompanied by various documents, including an application for residual debt discharge or a declaration that this is not to be applied for. In addition, a certificate from a recognized body confirming the failure of the out-of-court debt settlement, which it has drawn up on the basis of personal advice and a detailed examination of the debtor's income and financial circumstances, is required. This must show that an unsuccessful out-of-court debt settlement was attempted within the last six months prior to the application to open insolvency proceedings. The debt settlement plan must be attached. The main reasons for the failure of the plan must be explained.
If the insolvency application is admissible, the court regularly conducts further debt settlement proceedings, now in court, on the basis of the submitted debt settlement plan. This is a new attempt to reach an agreement with the creditors supported by the court. The insolvency proceedings are initially suspended for the duration of the court debt settlement proceedings.
If, at the end of the proceedings, no creditor has raised any objections or the missing consents have been replaced, the court will issue an order accepting the debt settlement plan. Insolvency proceedings are then no longer necessary.
However, if the court debt settlement proceedings fail, the insolvency proceedings initiated by the insolvency application are continued.
The first step is to check whether the procedural costs of the insolvency proceedings are covered or whether they can be deferred at the request of the debtor without means. Only if this is the case will the insolvency proceedings be continued. If not, the application to open insolvency proceedings is rejected for lack of assets. As a result, residual debt discharge cannot be achieved at the end of the proceedings.
The court then continues to examine whether insolvency proceedings should be opened. This requires a reason for opening the proceedings. This is the case if the debtor is insolvent or - in the case of an application by the debtor - if there is a threat of insolvency.
If these conditions are met, the court opens the insolvency proceedings by order and at the same time appoints an insolvency administrator to manage and realize the debtor's assets. The creditors' claims are then formally established, the debtor's assets are realized and distributed among the creditors.
This is followed by the so-called good conduct phase. During this phase, the debtor must transfer the attachable portion of their income to a trustee. For the duration of the good conduct phase, the debtor is also subject to further obligations.
At the end of the good conduct phase, the court decides on the discharge of residual debt if the debtor has previously filed an application for discharge of residual debt.
