Can you work as a self-employed person (Selbstständiger) during insolvency?

Yes, a debtor may continue self-employment or even start a new self-employed activity while insolvency proceedings are ongoing.

What are the main conditions?

1. Full transparency

• The insolvency administrator or trustee (Insolvenzverwalter / Treuhänder) must be informed immediately when any self-employed activity is started or continued.

• All financial documents and records related to the business must be disclosed.

2. Transfer of attachable income

• Any income that exceeds the exempt threshold (Pfändungsfreigrenze) must be transferred to the insolvency administrator, just like attachable parts of a regular salary.

• The net profit from self-employment (after deduction of legitimate business expenses) is used as the basis for calculating the attachable amount.

3. Strict financial management

• Profit and loss statements or income–expense summaries must be submitted to the administrator on a regular basis.

• The accounts must be kept clear and traceable in order to avoid any suspicion of hidden income or assets.

What are the specific risks of self-employment during insolvency?

• Accounting complexity:
  Self-employment requires detailed reporting and clean bookkeeping, which increases the administrative burden on the debtor.

• New financial risks:
  If new debts arise during the insolvency period, this may lead to denial of discharge (Restschuldbefreiung).

• Increased scrutiny:
  The insolvency administrator and the court will monitor self-employed activities particularly closely, especially if there are indications of undeclared profits.

Can the debtor employ staff during insolvency?

• In principle yes, but usually only with the prior consent of the insolvency administrator.

• Employing staff increases legal and financial responsibilities and may multiply the risks of new liabilities, which makes this a very sensitive decision during insolvency.

What are the advantages of continuing self-employment during insolvency?

• Maintaining the existing business and customer base.

• Creating an opportunity to rebuild the financial situation step by step.

• Avoiding complete dependence on social benefits or public assistance.

Practical tips for being self-employed during insolvency

• Work with an accountant or tax adviser (Steuerberater) to ensure that all reports and income declarations comply with the law.

• Do not start new investments without consulting the insolvency administrator or a specialised lawyer.

• Keep all invoices, contracts and receipts as proof of your real business expenses.

• Focus on generating a stable and reliable income, in order to reduce the risk to your payment plans and eventual discharge.

When is self-employment prohibited?

• If the court or the insolvency administrator has issued an express ban on business activity, for example due to serious past mismanagement or suspected fraud.

• In cases of serious legal violations which destroy the court’s trust in the debtor’s conduct.

Conclusion

German law generally allows self-employment even during personal insolvency proceedings, provided there is full transparency and any income above the exempt threshold is properly transferred to the insolvency administrator.

This possibility helps debtors to maintain their income and professional independence, but it also requires strict financial discipline and close cooperation with the responsible authorities.

The editorial team of the website strives to provide accurate information based on thorough research and multiple sources. Nevertheless, errors may occur or information may be incomplete or outdated. Please therefore treat the information in this article as a first point of reference and always consult the competent authorities and professional advisers for binding and up-to-date guidance.