Self-Employed During Bankruptcy – Is That Possible?

Self-Employed During Bankruptcy - Is That Possible?

If a self-employed debtor (be it as a sole trader or a freelancer) applies for bankruptcy, the question arises whether and how the activity can be continued during the ongoing proceedings.

As a rule, the negative balance from this activity is the cause of the insolvency proceedings. However, this is not always the case. Often it is even entirely in the interest of the insolvency administrator that he declares a so-called release for the activity: This is especially the case if this is also of financial benefit for the creditors.

With a declaration of release, the insolvency administrator waives his administrative and disposal authority with regard to the proceeds and assets from the self-employed activity. What that means, when this is the case and how a release is to be understood in detail, we explain to you in this post:


With the release of self-employment, an insolvency administrator waives his authority to administer and dispose of the assets and the proceeds from the self-employment of the insolvency debtor. With this, the legislature wanted to create a possibility for the debtor to maintain a commercial or professional activity outside of the insolvency proceedings and thus to maintain or establish an economic existence.

The link between the bankruptcy estate and the self-employed activity is thus dissolved, so to speak – for example, contractual relationships from the activity are still removed from the bankruptcy estate. In return, however, the insolvency debtor undertakes to leave the insolvency administrator a certain amount each month, which is used to satisfy the bankruptcy creditors and to cover the costs of the proceedings.

Division into old and new believers

The release has the effect that new believers (who have acquired claims against the bankruptcy debtor after the release) can only access the assets generated after the release declaration. The old creditors are not entitled to this according to § 89 – they are dependent on the bankruptcy estate.

This is of course different if the insolvency administrator for his part continues his independent activity, i.e. does not return his powers to the insolvency debtor after the proceedings have been opened. How the insolvency administrator works in practice always depends on the individual case?

Division into old and new believers

Procedure in practice

In practice, there are two ways to get self-employed:

Option 1:

With relatively high corporate assets, it is advisable to file for bankruptcy with ongoing operations. Initially, the company then becomes part of the bankruptcy estate and is subject to external administration by the insolvency administrator (about three months). The insolvency administrator can then release the business. He will do this especially if he can give the company a positive economic forecast.

In the next step, a fixed monthly payment is estimated that the bankruptcy debtor owes the administrator. This is based on the professional qualifications of the debtor and his maintenance obligations. If a comparison of this amount with what the debtor could potentially earn based on his professional qualifications as an employee shows that self-employment is more profitable, he will with a high probability also grant the release.

Our attachment calculator gives you an idea of ​​how high this amount could be in your case. Simply enter the amount of the net wage you can expect in the specific case on the free labor market. You must also state your maintenance obligations. We would also be happy to help you determine your hypothetical attachable income.

Example 1:

The successful DJ A earns an average of € 4,000 per month with his performances – but has never completed an apprenticeship / degree. It is hardly worthwhile for the insolvency administrator to forbid the activity, since A would earn far less on the open labor market.

Example 2:

The trained brain surgeon and former chief physician B had to go into bankruptcy due to horrific gambling debts. A year before the bankruptcy, he resigned his permanent position in order to pursue his passion: to inspire people with his favorite espresso with a coffee cart in the pedestrian zone. Obviously, he will earn less here than he theoretically could on the job market. The insolvency administrator will not allow this activity and will ask the B to be employed.

Option 2:

In the case of lower business assets, it is advisable to have a “fake rescue company” (limited company) founded by a person you trust. The debtor and formerly self-employed are hired by them as employees. As such, he then applies for personal bankruptcy. In this way he can ensure that he can maintain his business and that his income is calculable, as it were.

Example 2

How “free” is the release actually?

In order to answer this question, it is necessary to consider the individual components of a self-employed activity separately:


All employment contracts, supply contracts and rental contracts are included in the release declaration. The insolvency debtor is fully authorized to dispose of the property, i.e. he can independently conclude new contracts and terminate old contracts. He is also entitled to tax refunds. However, these can be offset by the tax office with the tax liabilities that arose before the bankruptcy. Theoretically, the debtor could even take out new loans – but this is hardly possible in practice as a bankruptcy debtor.


In the case of claims, a distinction must be made between when the respective invoice was issued. If this was provided after the declaration of release, the bankruptcy debtor is entitled to it in full. In the case of ongoing orders that have not yet been invoiced, a distinction is made: there is a separation on the one hand for the mass and on the other hand for the approved business operations, depending on the service section. The bankruptcy debtor should take into account pre-financing if this has not yet been paid; bankruptcy attorney can easily help coping with this matter. 

Obligation to submit an “achievable” monthly income

As shown above, the liquidator will calculate what the debtor could earn in the open labor market based on his or her professional training and past as an employee. Because then the debtor has to hand over the amount free of attachment to the insolvency administrator on a monthly basis. This is because the self-employed should not be given undue preference over an employee in bankruptcy proceedings.

Failure to pay this amount can, in case of doubt, even lead to a refusal to discharge the remaining debt. On the other hand, the administrator cannot request proofs and invoices of actual operating profits.


As a result, the insolvency debtor bears both the risks of continuing his independence (if the profits collapse, he can no longer transfer a tax to the insolvency administrator) as well as the chances (with his activity he can be far better off financially than an employee who relies on the Exemption from attachment).

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