Since October 1st, 2020, many over indebted people have been waiting for a change in the law. This new regulation is intended to enable debtors to be released from their remaining debts after just three years, even if, among other things, they did not have the opportunity to make at least partial payments available to their creditors.
The federal government has provided for this in a draft to further shorten the residual debt discharge procedure on July 1st, 2020.
Advantages of the scheme
The current version of the insolvency regulation stipulates that, in principle, the remaining debt can only be released after six years. If the costs of the insolvency proceedings have been paid, this time is reduced to five years. Only in exceptional cases, in around 2% of the bankruptcy proceedings, was the remaining debt released after three years.
With the new regulation, it is hoped that in most cases a residual debt discharge will be achieved after three years, both for the entrepreneurial debtor and for the private individual. However, details are controversial, which is why the law is not yet in force.
Since the US directive provides for a new regulation to be implemented by July 16, 2021 and this period can be extended by one year, there is unfortunately no external pressure to have the fundamentally mandatory change in the law come into force in the next few weeks.
Personal advice on a case-by-case basis is essential
Since it cannot be ruled out that the previous insolvency regulations are advantageous for a debtor, comprehensive advice from an experienced insolvency advisor is urgently recommended.
It will tend to make sense for most debtors to wait a little longer, as there is reasonable hope of finding a new legal situation in the next few months, which will often be more favorable for the debtors than the current legal situation, such as chapter 7 bankruptcy.
For debtors who are subject to consumer insolvency proceedings in accordance with Sections 304 ff of the Insolvency Code, it must not be forgotten that an out-of-court debt settlement plan is indispensable. Since the debtor can take six months for such a plan in accordance with Section 305 I No. 1 of the Insolvency Code, there is no reason to wait with the out-of-court debt settlement plan. You should wait, at least as long as these six months have not yet been exceeded, at least before filing for insolvency.
The suspension of the obligation to file for bankruptcy has been extended
As expected, the law to amend the COVID-19 Bankruptcy Suspension Act was passed by the Federal government on September 25, 2020 and will come into force on October 1, 2020 after it has been promulgated in the Federal Law Gazette and will apply until December 31, 2020.
The suspension of the criminal insolvency filing obligation, for example for managing directors of a GmbH, now states: From October 1, 2020 to December 31, 2020, the sole obligation to file a bankruptcy application due to over-indebtedness is suspended in accordance with paragraph 1. This means that the managing director of a company that is bankrupt from October 1st, 2020 must again submit an application for insolvency over the assets of the organizations to the bankruptcy court within the statutory period, not to be liable to prosecution for delaying bankruptcy.
The other statutory privileges (in particular, restriction of the civil law manager’s liability, contestation of bankruptcy, no subordination for shareholder loans and exemption from liability from banks) apply from October 1st, 2020 only if there is no bankruptcy.
In this respect, from October 1st, 2020, there will be increased liability for the bodies, creditors and banks obliged to file for insolvency if the company has become insolvent. For this purpose, advice to a lawyer who specializes in insolvency law should urgently be taken up by these persons.
Corona premiums, government emergency aid and short-time work allowances can be seized
In the corona crisis, which will continue in 2021, the legal question of seizure protection for the tax-free corona bonuses granted by the employer, for the state emergency aid for sole proprietorships and freelancers as well as for the short-time work allowance paid by the employer. A garnishment can take place at the source (employer or authority) or from the debtor’s account. The question of attach ability can also arise in the current bankruptcy proceedings of the debtor.
1. Attachment of the tax-free Corona premiums
According to the Federal Ministry of Finance, employers were able to grant their employees tax-free subsidies or benefits in kind from March 1st, 2020 to December 31st, 2020 due to the corona crisis, in the form of grants or benefits in kind in addition to the wages owed anyway and to alleviate the additional burdens of the Corona crisis. Due to the Annual Tax Act 2020, the period of tax exemption for Corona premiums has been extended to June 30, 2021.
First of all, it should be made clear that the tax exemption of the benefit under the Income Tax Act does not automatically mean that the benefit cannot be attached. For example, the legislature had only declared corona premiums for employees in care facilities to be non-attachable. Conversely, some therefore assumed that all other Corona premiums can be attached to employees outside of care due to the lack of legal regulation. Non-seizure can result if the corona premium is viewed as a hardship allowance or a hazard allowance. This difficulty can be seen on the one hand in the quantity of work to be performed (overtime, weekend work) and on the other hand in the health risk. The risk of infection with the life-threatening Sars-COV-2 virus can therefore result in seizure protection in individual cases depending on the type of activity of the employee. For employees in supermarkets, hospitals and retail outlets, the Corona premiums are not only intended to be a recognition of the special work performance, but also a financial compensation for the increased health risk associated with the work, since these employees are at a significantly higher level than others are subject to contracting the corona virus.
Such an increased health risk could be assessed differently for employees working from home (for example, employees at banks or health insurance companies who have been working from home without overtime since the peak of the pandemic), which would make the corona premiums attachable to creditors. A complication relevant to seizure law is not readily apparent here.
If the corona premium is paid out on the debtor’s seizure protection account, seizure protection can be achieved through an application by the debtor to the enforcement court (in the case of the debtor’s insolvency proceedings at the bankruptcy court).
2. Attachment of state emergency aid
Claims from state emergency aid for sole proprietorships and freelancers to overcome the economic problems that were triggered by the Corona crisis are fundamentally non-attachable for creditors due to their earmarking (securing livelihoods and securing jobs) and are not part of the bankruptcy estate in the case of the debtor’s bankruptcy.
However, the emergency aid can be attached to those creditors who are covered by the intended purpose. These are creditors of ongoing operating costs such as rent, electricity, gas, water, and leasing fees.
If the emergency aid has been paid out to the debtor’s seizure protection account, it can be seized by the creditors or, in bankruptcy proceedings, is part of the bulk. The debtor must submit an application for non-attach ability to the enforcement court (in the case of the debtor’s bankruptcy proceedings at the bankruptcy court).
3. Attachment of short-time allowance
Short-time work in the employment relationship means the temporary reduction in regular working hours in a company due to a significant loss of work. Employees receive 60 percent of the lost net wages as short-time work allowance. Employees with at least one child receive 67 percent of the lost net wage.
As a social benefit, the short-time work allowance can basically be seized like income from work. In the debtor’s bankruptcy proceedings, the entitlement to short-time allowance is automatically recorded by the bankruptcy charge. The peculiarity of the short-time work allowance is that it is paid out by the employer (although it is a state social benefit), so that the employer is considered to be a third party debtor in the garnishment of the claim to short-time work allowance. From this peculiarity, the Hamm Regional Labor Court concludes in the event of a seizure of the creditor by the employer that no separate aggregation decision is required if the employee also receives his (reduced) wages in addition to the (state) short-time work allowance.