Shortened residual debt discharge proceedings

According to a new draft law of the federal government, a new and shortened residual debt discharge procedure is to be introduced in the future.
This serves to free a debtor from his debts after a few years have passed, so that he has the possibility of a new economic start. Previously, this was only possible after six years. With the draft of 01.07.2020, the discharge of residual debt is now to take place after just three years. Thus, the EU Restructuring Directive 2019/2023 will be implemented in Germany.
The new procedure is to be understood as a part of the economic stimulus and crisis management package adopted in the context of the Corona crisis. For all consumer insolvency proceedings opened after 1 October 2020, there is generally a possibility of a settlement. thus the possibility to make use of the shortened residual debt discharge procedure. This is particularly intended to help those who have been driven into insolvency by the Corona pandemic. In particular, no further requirements have to be met for the discharge of residual debt – up to now, for example, the coverage of procedural costs had to be guaranteed.
In principle, all debtors should benefit from the new residual debt discharge procedure. However, for consumers – i.e. private individuals – there is a time limit until 30 June 2025. The Federal Government will decide whether this deadline will be waived in the future in accordance with a report submitted by 30 July 2024.
However, the regulations for the case of renewed insolvency must be observed. Should this occur, a blocking period of eleven years is provided for a new discharge of residual debt. In addition, residual debt discharge proceedings will then have a longer duration of five years instead of three.
In addition, debtors may be obliged to surrender acquired assets while they are in the “good conduct phase”. Unreasonable liabilities may stand in the way of residual debt discharge proceedings at this time.
In the end, the new draft was the subject of numerous criticisms by experts and also by the Committee on Legal Affairs and Consumer Protection. Especially because of the differentiating regulations for entrepreneurs and consumers, further revisions are considered necessary. Otherwise, there is a risk of practical and systematic problems. In principle, however, the shortened residual debt discharge procedure is welcomed.
Until a final regulation has come into force, it is therefore advisable to wait before submitting applications. In this context, the fact that retroactivity can be considered must also be taken into account. This is legally possible, as it is a favourable regulation for the debtors concerned. Any applications already filed may be withdrawn until the opening of insolvency proceedings pursuant to section 13 of the Insolvency Code.