Judicial Debt Settlement

A judicial debt settlement procedure is a renewed agreement attempt over the debt reduction in court.

Before a consumer can apply for personal bankruptcy, he must seek to settle out of court with his creditors for debt reduction . For this he created – usually by means of a debt or a lawyer – a debt settlement plan. This plan explains exactly how, in what amount, under what conditions and in which period of time the debts are to be repaid.

If this attempt fails , the debt advisor or the attorney issues a certificate with which the debtor can apply for bankruptcy. The insolvency court examines all documents of the applicant and decides whether a judicial debt settlement procedure promises success .

If the court comes to the conclusion that this renewed attempt to reach a legal settlement has no chance of success, it will immediately decide on the opening of insolvency proceedings . However, if it sees certain chances of success, it first carries out the debt settlement process . The consumer insolvency proceedings are therefore not yet opened , because first the insolvency court tries to reach an agreement on the debt settlement between the debtor and his creditors.

Except for the opening application for personal bankruptcy and the certificate of the failed out of court, the debtor must submit additional documents:

  • Asset list and balance sheet
  • Claims and creditor directory
  • Statement on the accuracy and completeness of his information
  • Debt settlement plan

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How is a judicial debt settlement process going?

Until the decision on the judicial debt settlement, the procedure for private bankruptcy is suspended . This phase of the procedure should not last longer than three months . The basis of the renewed attempt to unify is usually the debt settlement plan , which was also the basis for the out-of-court attempt to settle the debts.

The bankruptcy court will grant all debtors this debt settlement plan and the debtor’s balance sheet. It asks creditors to comment on this within a month . The court also expressly points out the consequences of a failure to deliver or a late statement:

If a creditor does not respond in time , his consent to the debt settlement plan is considered granted. Asserted claims expire. This is a judicial debt settlement process differs significantly from the extrajudicial debt settlement process. The silence of a creditor comes right in the court settlement attempt at approval of the debt settlement plan.

But there is another difference that results from § 309 Insolvency Act (InsO). The bankruptcy court can replace a creditor’s withheld consent and impose the debt settlement plan against his will. Because according to paragraph 1 of this provision, the court replaces the consent of a creditor if …

  • more than half of the named creditors have agreed
  • the sum of the claims of the consenting creditors is more than half of the sum of the claims of the named creditors (so-called ” double majority “) and
  • a creditor or the debtor requests the replacement of the consent .

A judicial debt clearance procedure can thus be a very effective method to reduce over-indebtedness .

If all creditors approve or the court replaces the missing consents, it will then decide on the acceptance of the debt settlement plan by resolution . The applications for the opening of insolvency and the discharge of residual debt are deemed to be withdrawn. No insolvency proceedings are opened so that the debtor saves himself the tedious and tedious way through private bankruptcy .

He now has to reduce his debt according to the debt settlement plan . In accordance with section 308 (1) sentence 2 InsO, this acts as a court settlement . At the same time, it constitutes an enforcement order. That is, if the debtor does not abide by the arrangements in the plan, any debtor can enforce it.

If a judicial debt settlement process fails , the insolvency court opens the (simplified) private insolvency proceedings. This also applies if it disregards such an attempt to unite due to insufficient chances of success.