Even worse than the financial problems in personal bankruptcy are the mental ones. Many people suffer enormously from the pressure they are exposed to from the creditors, their warnings and threats, and the depths of the legal situation. It is the job of a competent insolvency advisor to cushion exactly this, to explain all details and eventualities to his clients, to be available for queries, and to react quickly in an emergency. Most of them do too – but there are black sheep with whom people affected by bankruptcy only get more trouble.
Every bankruptcy is different for each individual situation. A portfolio recovery lawsuit can be challenging under certain circumstances. Hence, if one is inexperienced in the legal details, he/she can make a lot of mistakes. The insolvency advisor, who at least receives his fee from the debtor’s limited funds, is supposed to prevent this. Unfortunately, there are lawyers who do not do this. Basically, it is a simple calculation: Depending on the amount of debt and the number of creditors, initiating bankruptcy costs a few hundred to over a thousand dollars. On the legal side, only a few steps are necessary:
Insolvency initiation: little effort
First, the creditors are written to in order to inquire about the exact amount of the liabilities. A settlement is then proposed to the creditors. If one refuses, the path to filing for bankruptcy in court is free.
These three steps do not cause any special workload and are usually not even done by the lawyer himself, but by his office employees, who adapt and send the form letters. As long as no complications arise (for example, that a creditor cannot be found or that additional communication and research efforts are required for other reasons), it is a standard process that hardly takes an hour’s work.
Basically, this part could even be done by the debtor himself if he is able to draw up appropriate letters. But until the insolvency process is underway, everything has to be considered. How do I ensure that my garnishment allowance remains inviolable? How do I react to reminders and threats of attachment? How much can/must I earn, how do I declare my income correctly? What may and may not be attached if the worst comes to the worst? This list goes on and on, and it creates uncertainty and stress because a lot can go wrong.
Find a competent lawyer
“A good bankruptcy attorney tries to mediate between the parties to avoid such cases under certain circumstances,” says Mike Ziegler in an interview.
But how do you know in advance whether the lawyer is competent and makes an effort? A first approach is to search the Internet: Do other people report their experience with a particular lawyer and are they positive or negative? It should be noted here that a distorted picture can arise because generally, those with bad experiences are more likely to express themselves online. Public debt counseling is an alternative to a lawyer offered by trade unions, charitable or diaconal organizations in almost every city. These are free of charge, but often involve long waiting times. Nevertheless, it can be worthwhile to ask which lawyer is recommended on site. Because people who have had bad experiences with commercial debt counseling often turn to public bodies so that the advisors there usually have a good overview and can make recommendations or warnings.
This is how you can avoid committing a crime
Bankruptcy is an important turning point in a person’s life. It is an opportunity for a new beginning, for a life without debt and financial worries. In the event of bankruptcy, however, there are criminal risks. Most entrepreneurs fight for their business to the last. This honors the company owner but increases the risk of criminal prosecution.
Remember, prosecutors and judges, are public servants. They have no idea and, unfortunately, often no understanding of the hard life of an entrepreneur who is fighting for his existence and that of his company. The following advice can usually help you avoid the criminal consequences of bankruptcy.
From delaying bankruptcy to fraud: In the event of bankruptcy, an entrepreneur can easily commit a criminal offense. Four tips from the bankruptcy attorney will help you avoid criminal consequences.
1. File the bankruptcy application in good time
It is customary for every bankruptcy file to be presented to the prosecutor. If you are the managing director of a Company, the public prosecutor will check whether you have filed for insolvency within the statutory period of three weeks after insolvency. Otherwise, there is a risk of being charged with bankruptcy.
Insolvency exists if you no longer have the financial means to pay 90 percent of the liabilities due within one month. This three-week period cannot be extended.
If you had agreed to pay in installments with creditors, only the installment due is to be taken into account as a debt. To protect yourself, you should have the option of paying in installments confirmed in writing. You can then submit this letter to the public prosecutor’s office.
Incidentally, the public prosecutor’s offices are happy to obtain information from the competent local court about court dunning procedures, enforcement orders from bailiffs or from your health insurance companies regarding arrears.
Even if you still have hope of avoiding bankruptcy, always keep Plan B in mind and seek advice from a bankruptcy and reorganization attorney who specializes in advising you.
2. Pay the employee contributions to social security with priority and on time
If you are an employer, you always use the last available funds to give priority to the social security contributions of your employees. Pay social security first, then the wages. The employee receives insolvency money for three months in the full amount of the net wage and does not suffer any damage if you do not pay the wages. If funds are scarce, you pay earmarked for employee shares. Please state this as the purpose of payment when making the transfer.
What you probably don’t know: Every month that has not been paid is a separate offense – and that for each health insurance company. There can be a sum of daily rates in the penalty order or judgment. Even late payment of the contribution is a criminal offense. You should therefore pay employee social security contributions on time – even if it is difficult.
One of my clients, a transport company, received a penalty warrant for more than 50 offenses with alleged damage of more than $60,000, just because he occasionally made the contributions a few days late. Less than $500 were not paid when filing for insolvency.
You should also be aware: The unpaid employee contributions are not subject to the discharge of residual debts. So they stay with you even after the bankruptcy.
3. Pay for recent orders and purchases before filing for bankruptcy
In order to keep the business going, you need goods, for example. If a supplier learns that the invoice is still open and you have filed for bankruptcy a few days later, it smells like fraud to him: He assumes that you knew when placing the order that you were applying for bankruptcy and the invoice doesn’t pay anymore.
Even small orders that you could have paid from the postage account can be seen as fraud and lead to punishment. Business partners like to threaten with a criminal complaint about fraud: They want to get you to pay the bill despite a bankruptcy.
So be sure to pay the latest bills before filing for bankruptcy. Leave anything older than a month.
4. Prepare the company balance sheet by June 30 of the following year
Very few entrepreneurs and their tax consultants are aware of the rule that in the event of bankruptcy, the balance sheet must be drawn up by December 31 of the previous year within six months – i.e., by June 30 of the following year.
Otherwise, you are liable to prosecution for a violation of the accounting obligation. And be careful: this offense can lead to a refusal to discharge your remaining debt – something that hits you the worst. Ultimately, insolvency proceedings should ensure that your debts are gone after six years at the latest. A balance sheet that was drawn up a few weeks too late can have serious consequences under criminal and civil law.
Make sure you have at least a preliminary balance sheet. The balance sheet does not have to be ready for the tax office or submitted there. Talk to your tax advisor so that he has a printout ready for you with the correct date.