Can You Start a Business After Personal Bankruptcy?
In principle, the state does not impose any obstacles for a debtor to become self-employed. From a purely legal standpoint, it is possible to establish a company even in the event of personal bankruptcy.
Exceptions to Starting a Business After Personal Bankruptcy
However, there is one significant exception. If the bankruptcy is not just personal, but also includes a business bankruptcy, or if the debtor has been convicted of certain crimes related to the bankruptcy process (such as failure to maintain accounts, fraud, or bankruptcy crimes), the debtor may be prohibited from acting as the managing director of a UG (limited liability) for up to 5 years after the conviction.
Criminal Convictions Impacting Self-Employment
The same restriction applies if there is a final conviction or a criminal injunction for bankruptcy delay, fraud, false information, credit fraud, breach of trust, or salary withholding. In these cases, the individual cannot serve as a managing director for 5 years. However, it is still possible to become a shareholder in a UG (limited liability) if someone else takes over the management.
Consent from the Bankruptcy Trustee
If none of the restrictive conditions apply, and if the standard bankruptcy procedure is still ongoing, the debtor must seek the consent of the bankruptcy trustee under Article 35, Paragraph 2 of the Bankruptcy Code to pursue self-employment. In many cases, this may not be an easy process. Factors like imminent unemployment, limited opportunities in the labor market, and a convincing business plan may be sufficient, but the final decision lies with the bankruptcy trustee.
Obligations During the Good Behavior Phase
During the good behavior phase of bankruptcy proceedings, there are strict obligations not to incur new debt and to accept any reasonable work offers. These obligations do not end if you transition to self-employment. Moreover, payments must be made to creditors as if the individual were employed. Failing to meet these obligations could result in the rejection of outstanding debts, meaning old debts would be reinstated, and interest would be calculated retroactively. If bankruptcy proceedings fail, creditors may have the option to seize the debtor’s company shares.
Can You Start a UG (Limited Liability) After Personal Bankruptcy?
If these conditions are properly addressed and the bankruptcy trustee grants consent for self-employment, there is no reason why you cannot establish a UG (limited liability) even after personal insolvency.
Learn More About Founding a UG
For more detailed guidance on starting a company, check out our guide: “Founding a UG – How It Works”. It includes step-by-step instructions, a free UG sample protocol to download, and the cost of starting a UG in 2023.
Ready to Create Your UG?
If you’re familiar with what a UG is and have decided to start your entrepreneurial journey, explore our UG Motif Pack. It includes all the necessary documents to set up a UG yourself and can help you save significantly on startup costs.