Obtaining German Citizenship in Spite of Welfare
A Turkish lady had been living in Germany for more than eight years and was living off welfare. At first she vainly tried to apply for German citizenship. Neither the competent administrative office nor in the first instance the administrative court decided in her favor. Thus did OVG (judgment of May 8, 2006, re 12 TP 357/06).
In accordance with this decision, financial sustainability is not as important as for residency. If it is not your fault that you are laid off, then you still can obtain German citizenship if you meet the remaining criteria. Citizenship will be opposed to by being dependent on welfare if you lost your job or for not fulfilling your duties from your labor contract. Another reason would be if your unemployment money was blocked in accordance with §144 SGB III. Any other reasons showing your reluctance to work will bar you from German citizenship. This could be, for example, if you were idle about actively improving your financial situation. It is not your responsibility if you lost your job for health or structural or cyclical economic reasons.
Does this change your residency status? Just the denial of citizenship does not touch your residency status. Since, at the time, you are applying for German citizenship, you will most likely have a permanent residence status. Having an unlimited permission to remain in Germany will usually not be touched by the fact that you are unemployed.