If companies or private individuals are no longer able to meet their payment obligations, there is a risk of bankruptcy. From a legal perspective, it is also known as “acute insolvency”.
The competent bankruptcy court then initiates the insolvency proceedings and usually appoints an insolvency administrator who takes over the management and realization of the existing assets.
1. When is it necessary to file for bankruptcy?
When an application for insolvency must or can be made differs for companies and private individuals. Companies are obliged to file for bankruptcy within three weeks of the onset of insolvency. As a rule, it can only be determined on a case-by-case basis when a company is considered insolvent. To do this, one compares the liabilities with the available financial resources; go through 7 chapter bankruptcy in this case. Bankruptcy is to be assumed if the liabilities exceed the company’s liquid assets by more than ten percent. Since 1999, private individuals in the USA have had the option of registering a so-called private bankruptcy (legally correct: consumer bankruptcy). In contrast to companies, however, there is no legal obligation to do so in the case of private over indebtedness.
This is a simplified insolvency procedure that ends after three to six years with a discharge of residual debts if the debtor has fulfilled his judicial obligations towards the creditors during this period. As a rule, consumer bankruptcy is only open to private individuals who draw their income from non-self-employed activities. Freelancers and the self-employed can use this debt relief option if there are no financial claims against them from employment relationships and there are no more than 19 creditors.
If these conditions are not met, they, like other companies, have to file for bankruptcy.
In both cases, debtors or creditors can apply for insolvency proceedings at the competent local court. The local courts in the US also take on the tasks of insolvency courts. The court decides whether the debtor can manage the bankruptcy estate himself. As a rule, however, it will appoint an insolvency administrator. It can appoint a temporary administrator if there is a bankruptcy petition but proceedings have not yet been opened.
2. What are the tasks of a bankruptcy administrator?
With the tasks of an insolvency administrator, courts usually commission lawyers, tax advisors or auditors who specialize in insolvency law. It is important that the administrator is independent of the creditors and the debtor. The main task of the insolvency administrator is to determine the bankruptcy estate – i.e. the existing or expected future wealth – and to divide it up between the creditors. In doing so, he must ensure that the remaining assets do not dwindle further – for example by temporarily continuing a company that is part of the bankruptcy estate.
Bankruptcy attorney also mediates between creditors and debtors with the aim of reaching an amicable and consequently out-of-court settlement on debt servicing. In the course of the opening of insolvency proceedings, the bankruptcy estate temporarily becomes the property of the insolvency administrator.
3. What are the rights and obligations of an insolvency administrator?
The administrator can freely dispose of the bankruptcy estate in order to realize the attachable assets of the debtor. He has the right to conclude contracts and to sell the debtor’s assets that are not subject to seizure protection.
He is also entitled to initiate the seizure of income and assets. He creates a list of debtors, an insolvency plan and, in the case of corporate insolvency, a restructuring plan, informs all those involved about the current status of the insolvency proceedings and monitors the implementation of the goals set in the bankruptcy plan and possibly in the restructuring plan.
The central duty of an insolvency administrator is to achieve these goals and to satisfy the claims of the creditors as best as possible. Further obligations relate to the fulfillment of his obligation to provide information to the bankruptcy court and the creditors’ meeting. At the end of the procedure, he is obliged to submit a comprehensive accounting. If he violates his duties – including the duty of care and conscientiousness – he is liable for the resulting damage.
4. What can debtors do if the liquidator wants money from them?
It is in the nature of things that the insolvency administration demands money from debtors. However, these are not individual claims, but the satisfaction of the creditors through the realization of the assets.
The administrator is therefore not entitled to demand further payments from a debtor. The debtor can take legal action against such claims. The fees for the administrator and the bankruptcy proceedings are also paid from the bankruptcy estate.
5. What can I do – the bankruptcy administration pays no rent or no salary?
In principle, an insolvency administration has nothing to do with the ongoing rent payments from debtors who are in private bankruptcy proceedings. The debtor must settle his rent and other ongoing payments from his non-attachable portion of his income. For an individual with no maintenance obligations, the attachment limit is currently 1,179 dollars. Rent debts are among the creditors’ claims that are satisfied in the context of insolvency proceedings. Deposits can be used to satisfy creditors’ claims. In the case of corporate bankruptcy, ongoing rent payments may be settled from the bankruptcy estate for the time being.
Salary payments for employees in the event of corporate bankruptcy are taken over by the Federal Employment Agency. The administrator must submit a corresponding application there. Bankruptcy money is paid retrospectively in the form of a tax-free one-off payment for three months and corresponds to the net remuneration that the employee would have received during this period. This also applies to the managing director of an insolvent company. The owner himself is not entitled to insolvency money, but can submit an application for maintenance during the insolvency proceedings to the creditors’ meeting through the insolvency administrator.
A bankruptcy requires support from debt counseling
Whether private or corporate bankruptcy: As a debtor, you should get support from a debt counseling service before initiating the insolvency proceedings. Your debt counselor will give you comprehensive advice on the course of the procedure as well as your rights and obligations.
Bankruptcy attorney will support you in drawing up the list of creditors and represent your interests vis-à-vis the bankruptcy administration and the insolvency court. Most importantly, he will assist you in reaching an out-of-court settlement with your creditors.
Likewise, as a creditor in bankruptcy proceedings, you should not do without the accompaniment of a debt counselor or bankruptcy attorney. Our debt counseling service in Florida will be happy to support you.