Insolvency filing

What is an insolvency filing?

An insolvency filing is the formal application to initiate insolvency proceedings. It is submitted when a debtor can no longer meet their financial obligations. Both the debtor and creditors can file for insolvency.

Key points:

• Inability to pay: The debtor is unable to meet due payment obligations.

• Over-indebtedness: The debtor’s debts exceed their assets.

The filing is submitted to the competent insolvency court to facilitate an orderly resolution of the debts. The goal is either to restructure the debtor or to fairly distribute their assets among creditors.

An insolvency application includes crucial details about the debtor’s financial situation, assets, and creditors. The court reviews this information to decide whether to open insolvency proceedings.

How do insolvency proceedings work?

1. Insolvency application

The debtor or a creditor files an application with the insolvency court to initiate the process. This request formally asks the court to address the insolvency situation.

2. Application review

The court evaluates the application and assesses the debtor’s financial situation, ensuring sufficient funds are available to cover the costs of the proceedings.

3. Opening of proceedings

If the application is accepted, the court opens the insolvency proceedings and appoints an insolvency administrator to manage the process.

4. Public notice

The court announces the opening of the insolvency proceedings publicly so that all creditors are informed and can register their claims.

5. Claim registration

Creditors must register their claims with the insolvency administrator within a specified period, stating the amounts owed by the debtor.

6. Claim review

The insolvency administrator reviews the submitted claims to verify their accuracy and compiles a list of recognized claims.

7. Asset liquidation

The insolvency administrator liquidates the debtor’s assets, collecting funds to create the insolvency estate.

8. Distribution of the insolvency estate

The collected funds are distributed among creditors according to a predetermined plan, ensuring equal treatment for all creditors.

9. Final report and conclusion

The insolvency administrator submits a final report. The court then decides to conclude the proceedings. The debtor may apply for debt discharge to be relieved of remaining unpaid debts.

How long do insolvency proceedings take?

The duration of insolvency proceedings varies significantly based on several factors:

• Case complexity: Simple cases may be resolved in a few months, while complex cases involving numerous creditors and assets can take years.

• Asset liquidation: Identifying, valuing, and selling the debtor’s assets can be time-consuming.

• Claim verification: Reviewing and verifying creditor claims is especially lengthy when many creditors or disputes are involved.

• Court processes: Overburdened courts may delay proceedings.

• Debt discharge: If the debtor seeks debt discharge, the process typically lasts six years, though it may be reduced to three years under certain conditions.

In total, proceedings can take anywhere from a few months to several years.

When should creditors consider filing for insolvency?

• Debtor’s inability to pay: When the debtor has failed to meet obligations for an extended period and no improvement is expected.

• Imminent insolvency: If it becomes clear that the debtor will soon be unable to pay.

• Over-indebtedness: When the debtor’s debts significantly exceed their assets, and repayment is unrealistic.

• Unsuccessful dunning procedures: If all out-of-court and court collection efforts have failed to secure payment.

Creditors may file for insolvency to recover at least part of their claims through an orderly asset liquidation and minimize further financial losses.

How does an insolvency filing affect ongoing dunning proceedings?

1. Suspension of dunning proceedings

Once insolvency is filed, ongoing dunning proceedings are usually suspended. No further steps can be taken until the insolvency process concludes.

2. Creditor role

The creditor must register their claim within the insolvency process by submitting a claim registration form to the insolvency administrator.

3. Insolvency administrator

A court-appointed insolvency administrator manages the debtor’s assets and ensures equitable distribution among creditors. Creditors must cooperate with the administrator to assert their claims.

4. Claim settlement

Creditor claims are settled according to legal priority. Unsecured creditors typically receive only a portion of their claims, depending on the debtor’s available assets.

5. Suspension of enforcement actions

All individual enforcement actions are halted upon the opening of insolvency proceedings. Creditors cannot initiate further enforcement measures during this time.

6. Debt discharge

At the end of the proceedings, the debtor may be granted debt discharge, releasing them from remaining unpaid debts. Creditors lose the right to pursue further claims against the debtor.

When can dunning proceedings resume?

Dunning proceedings can only continue once the insolvency process concludes, provided the debtor:

1. Regains solvency: The debtor must be able to pay or have newly discovered assets.

2. Does not receive debt discharge: If the debtor is not granted debt discharge, the remaining debts can still be pursued.

If these conditions are met, creditors can resume their efforts to collect outstanding debts.

What are the costs of filing for insolvency?

1. Attorney fees

Creditors may incur attorney fees if they hire legal counsel to file for insolvency or represent them during the process.

2. Procedural cost advance

The court may require an advance payment for procedural costs, especially if it is unclear whether sufficient assets are available to cover these expenses.

3. Claim registration fees

Minimal fees may apply for registering claims with the insolvency administrator, particularly if an attorney handles the registration.

4. Travel expenses

If personal attendance at court hearings or creditor meetings is necessary, travel costs may be incurred.