If a debtor is in bankruptcy, the question sometimes arises whether borrowing is also possible within the bankruptcy. And just because the bankruptcy courts and administrators are already working at full speed because more and more bankruptcies are being filed, it is increasingly important that bankruptcy and a loan agreement are mutually exclusive.
In the private sector as well as in the business sector, it is basically possible to apply for bankruptcy in the event of over-indebtedness. In the event of over-indebtedness, which can no longer be shouldered using one’s own resources and financial resources, bankruptcy law offers the possibility of filing for bankruptcy. If a debtor gets into payment difficulties because of too many creditors, bankruptcy can be the last resort to settle the financial situation again.
Insolvency in the private sector can result from too many and too high loans. But unemployment or inability to work are also reasons why the previous income is reduced and the financial burden can no longer be shouldered. In this case, both the debtor and the creditors have the option of initiating bankruptcy. The application for bankruptcy is made within the bankruptcy notice of the local court and the daily newspaper. Within the bankruptcy plan due to bankruptcy, the insolvency administrator takes over the determination of the bankruptcy estate.
Bankruptcy can only be averted by contesting bankruptcy if, for example, creditors have applied for bankruptcy. An important prerequisite for applying for bankruptcy is that the insolvency is not only temporary, but that there is permanent insolvency. The debtor has the option of applying for bankruptcy money that enables him to live for himself. Additional assets and income of the debtor will be realized within the bankruptcy.
The bankruptcy administrator decides whether to open the bankruptcy. From the opening of the bankruptcy, the creditors no longer make their claims to the debtor, but to the bankruptcy trustee. This means that the bankruptcy trustee largely takes over the economic processing of the debtor. The aim of insolvency is to largely satisfy the creditors’ claims.
The residual debt is released after seven years and the debtor is deemed to be debt-free from this point in time. The entry within the Credit Bureau will then be made after a further three years. Exactly from this point in time – namely the initiation of bankruptcy – borrowing is difficult because the debtor’s insolvency has just been determined. It is also important for the debtor to endeavor to smooth his financial situation within the bankruptcy.
With renewed borrowing, however, there is further debt. Thus, a debtor who is in bankruptcy should not borrow without prior consultation with their liquidator. Borrowing is not only problematic from the perspective of insolvency law. Even banks do not see a debtor who is in bankruptcy as a credit partner with sufficient creditworthiness. Due to the distribution of income that is above the garnishment limit, a debtor often has little financial leeway even with relatively high income.
Furthermore, if the bank agrees to borrow, the debtor should know that this new loan agreement does not fall under the old bankruptcy. If the newly taken out loan is not serviced, it does not fall into the current bankruptcy.
Ways of borrowing within a bankruptcy
In principle, there is also the possibility for debtors to take out a loan within an ongoing bankruptcy. The bankruptcy court only stipulates legal conduct, i.e. the absolute effort to avoid renewed over-indebtedness. While the creditors only have to agree to the regular insolvency, the debtor can only take out a loan with the consent of the administrator, who in turn has been determined by the court.
The fact is that otherwise existing capital that exists through borrowing would in turn be attachable assets. Due to the negative Credit Bureau entry that the insolvency proceedings entail, most banks are not keen to enter into a loan agreement with a person in bankruptcy, since every loan application in Germany is initiated by a Credit Bureau query.
There is an increased chance of getting a loan if the debtor can teach a guarantor to borrow. This guarantor is the third contractual partner in the loan agreement. The guarantor is liable for the loan with his assets, which means that the guarantor is used to pay the loan through the bank if the actual debtor is in arrears with payment. An important condition for borrowing from a guarantor is that the guarantor has a credit rating. A loan without a guarantor is hardly possible within the bankruptcy with German banks.
An alternative for a loan from the bank can be to take out the loan within the bankruptcy with private investors, i.e. to take out a personal loan. This loan can be processed purely privately, but also through intermediaries, the so-called P2P loans, i.e. loans from private individuals. There are platforms on the Internet for contacting lenders and applicants. The applicant signs up for such borrowing on the relevant platform and presents himself and his background for the loan requirement.
If a lender opts for the lending business, a contract can be concluded. Interest and conditions for the loan agreement are agreed between the partners. This lending increases the risk of default for the lender. Borrowing can be done with one or more lenders.
Borrowing without Credit Bureau
Another alternative to credit from the German financial institution that avoids the granting of credit to consumers in the bankruptcy rule, is a borrowing of the so-called loan without Credit Bureau. A variety of online financial services offer on the internet loans despite ongoing bankruptcy and without credit check on. These credit institutions come from other European countries, mostly from Switzerland. While German banks usually do not even give a debtor a credit line on the current account to a debtor in bankruptcy, the financial service providers from Switzerland are much more accommodating. Despite the application for bankruptcy, these providers very often grant a loan.
The amount of this loan, despite the bankruptcy from Switzerland, is limited. As a rule, the loan amount does not exceed 3,500 USD. Due to the increased default risks for the lender, these loans are subject to higher interest rates despite the bankruptcy without Credit Bureau, which cushion the increased risk for the lender somewhat. If there is a desire for a higher loan amount in spite of bankruptcy without Credit Bureau, then the debtor in bankruptcy may also have the opportunity to teach a guarantor with attachable income for the processing of the loan business.
It is important in all cases of borrowing within the bankruptcy to agree with the bankruptcy administrator. On the other hand, you should carefully inform yourself about the loan conditions in order to achieve an absolute guarantee for the repayment of the loan. Especially for the loan despite bankruptcy without Credit Bureau, the loan can turn out to be significantly more expensive than a loan from a German bank with a Credit Bureau check due to higher interest rates, and this can result in an increased risk of default on the loan. It is important for borrowers within the bankruptcy to know that they can, if necessary, make themselves punishable if the repayment of the new loan is not made in accordance with the contract.
Borrowing is significantly easier once the insolvency proceedings have been completed. After the seven-year behavioral phase has been successfully completed, the court releases the debtor from the remaining debt – the debtor is officially released. Although the Credit Bureau entry will remain for another three years, banks will again be significantly more open when it comes to lending if the debtor has gone through bankruptcy completely, has successfully completed the conduct of conduct phase and is therefore considered debt-free.