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Comment by tptacek | Hacker News Reader

From the article:

But at the beginning of the 1990s, his life came crashing down around him. One of his main customers stopped paying. He fought for years to get the unpaid money and restructured his debt to get seed capital for his new business plan. He fought desperately -- and ultimately in vain. In 1997, he was forced to capitulate. By that point, he had already been unable to work for two years and was on welfare. He lost his family home in a foreclosure and his pension and retirement insurance plan was seized. His landlord evicted him. Manfred Huber was ruined.

How does bankruptcy law work in Germany? This kind of catastrophe is what BK law is supposed to prevent.

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There are two different factors at play here.

One is that until recently it was very difficult to form a limited liability company (GmbH) in Germany, requiring a fair amount of founding capital (currently €25,000). In 2008, the "UG (haftungsbeschränkt)" was created as a new type of limited liability company; it only requires €1 of founding capital, but also to set aside one quarter (I think) of your profits to add to the capital until you reach €25,000. This option was not available back then, and it appears as though Mr. Huber became fully liable for his business's accumulated debts (which must have been considerable to wipe out both his retirement savings and result in the loss of his family home).

The second problem is that until 1999, there was no viable way to deal with a personal bankruptcy. Basically, once bankrupt, it was nearly impossible to get out of it without your creditors' consent. The personal bankruptcy reform of 1999 changed that – though the process is still pretty onerous – but probably too late for Mr. Huber to recover in any meaningful way.

Personal bankruptcy didn't exist in Europe in the '90s (AFAIK it's still not in the law in many EU countries).

Limited liability companies have the option of bankruptcy (by definition), but as a business owner it will leave a black mark on your credit rating in most countries... And typically in a small business, the bank required that company loans were guaranteed by the business owner or close family anyway, so a bankruptcy didn't really solve anything.

To be precise, the personal bankruptcy law in Germany came into effect in 1999.

It depends entirely on type of his business entity.

If he founded a GmbH (the most common type of business entity in Germany), his private funds are protected in case the business goes bankrupt.

On the other hand, if his business was a GbR he can also be held liable with his private money.

This are just examples. There are a lot of different business types out there with different liability implications.

I think the US equivalent to the GmbH is being 'incorporated'

the US equivalent of GmbH is LLC

I think there's no obvious US equivalent. IIRC, a GmbH can sort of go through multiple stages that each have some aspects of different US entity types. In a literal sense it would translate to an LLC, but I don't think the rules are similar enough for that to actually be a useful translation.

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