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Consequences of employer insolvency
Information on the consequences of employer insolvency for foreigners in Germany.
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what employer insolvency is and when it occurs
what the consequences of insolvency are for the residence permit
What you have to do as a foreigner in the event of employer insolvency
1. Insolvency of the employer
2. What happens to the residence permit in the event of insolvency?
3. Apply for insolvency benefits
4. FAQ
5. Conclusion
1. Insolvency of the employer
An employer's insolvency represents a significant burden for employees. In addition to uncertainty about the company's continued existence, existential concerns regarding job security and wage payments come to the fore. Key issues arising in connection with corporate insolvency include securing outstanding wage claims through insolvency benefits , the continuation or termination of existing employment relationships, and rights and obligations toward the insolvency administrator.
For foreign nationals, employer insolvency is further complicated by the fact that the insolvency can affect their residence permit . According to Section 41 of the Residence Act, the Federal Employment Agency may, among other things, revoke its consent to the issuance of a residence permit if insolvency proceedings have been initiated against the assets of the employer or the assets of the host establishment ( Section 40 (3) of the Residence Act ).
2. What happens to the residence permit in the event of insolvency?
The revocation of approval for the employment of a foreign worker by the Federal Employment Agency (BA) is not an administrative act, but rather an internal act vis-à-vis the immigration authorities or foreign mission. If the BA revokes its approval due to the employer's insolvency, the immigration authorities are obligated to revoke the residence permit . In this case, you should definitely contact a lawyer to ensure the legality of your stay in Germany.
The decision regarding revocation rests with the BA's due discretion. In particular, the principle of proportionality must be observed. The Federal Employment Agency is obligated to comprehensively assess all circumstances of the individual case in its discretionary decision and may give the employer and employee the opportunity to provide additional comments. However, this does not constitute a hearing within the meaning of the Administrative Procedure Act. Therefore, the BA must also consider the foreign national's interests in its decision.
3. Apply for insolvency benefits
Regardless of their residence status, foreign workers should act immediately in the event of employer insolvency in order to secure their wage claims . If insolvency proceedings are opened against the employer's assets or the business is closed, employees are entitled to what is known as insolvency benefit , which is paid by the Federal Employment Agency. The prerequisite for this is a timely application , which must be submitted no later than two months after the insolvency event . This period begins with the court order opening the proceedings or dismissing them due to insufficient assets - in the event of a business closure, it can also be triggered by a determination by the Employment Agency. Employees should therefore not wait but submit the application as soon as possible and have this confirmed, for example by a dated application or a telephone request.
Insolvency benefits cover a maximum of the last three months before the insolvency event and are subject to the monthly contribution assessment limit for unemployment insurance. This means that gross wages are capped for calculating insolvency benefits. Payment is only made if the outstanding wages are confirmed by an insolvency benefit certificate, either by the insolvency administrator upon opening of proceedings or by the employer if the claim is dismissed due to insufficient assets or closure of operations. It is therefore particularly important for foreign employees to take action as soon as there are signs of their employer being in financial crisis. Only those who know their rights and assert them in a timely manner can ensure that outstanding wages are not lost. Filing an application in a timely manner is the most important step towards financial security in the event of employer insolvency.
4. FAQ
What happens to my residence permit if my employer goes bankrupt?
The Federal Employment Agency can revoke its consent, which can lead to the loss of the residence permit (Section 40 (3), Section 41 Residence Act).
How do I apply for insolvency benefits?
You must submit the application no later than two months after the insolvency. It covers wages for the last three months (Section 165 of the German Social Code (SGB III)).
How much is the insolvency benefit?
The insolvency benefit corresponds to the outstanding gross wages for the last three months, but is capped by the unemployment insurance contribution assessment ceiling. Payment is only made upon proof of payment by the insolvency administrator or employer.
5. Conclusion
An employer's insolvency can have far-reaching consequences for foreign workers – not only financially, but also in terms of their residence permit. Particularly critical: In the event of insolvency, the Federal Employment Agency can revoke its approval for employment , which in turn can lead to the revocation of the residence permit (Section 40 (3) and Section 41 of the Residence Act). Therefore, immediate legal advice is essential. In addition, affected employees should definitely apply for insolvency benefits in a timely manner. Only those who proactively assert their rights can secure wage claims and ensure a legally secure continuation of their residence permit.
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List of Sources (Paywall)
[1] Bergmann / Dienelt, Aliens Law, 15th edition 2025, § 39
[2] Braun, Insolvency Code (InsO), 10th edition 2024