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Bankruptcy is a legal process through which people or other entities who cannot repay debts to
creditor A creditor or lender is a party (e.g., person, organization, company, or government) that has a claim on the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property ...
s may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a
court order A court order is an official proclamation by a judge (or panel of judges) that defines the legal relationships between the parties to a hearing, a trial, an appeal or other court proceedings. Such ruling requires or authorizes the carrying out ...
, often initiated by the
debtor A debtor or debitor is a legal entity (legal person) that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor. When the counterpart of this ...
. Bankrupt is not the only legal status that an insolvent person may have, and the term ''bankruptcy'' is therefore not a synonym for
insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-shee ...
.


Etymology

The word ''bankruptcy'' is derived from
Italian Italian(s) may refer to: * Anything of, from, or related to the people of Italy over the centuries ** Italians, an ethnic group or simply a citizen of the Italian Republic or Italian Kingdom ** Italian language, a Romance language *** Regional Ita ...
''banca rotta'', literally meaning "broken bank". The term is often described as having originated in
renaissance The Renaissance ( , ) , from , with the same meanings. is a period in European history marking the transition from the Middle Ages to modernity and covering the 15th and 16th centuries, characterized by an effort to revive and surpass ide ...
Italy Italy ( it, Italia ), officially the Italian Republic, ) or the Republic of Italy, is a country in Southern Europe. It is located in the middle of the Mediterranean Sea, and its territory largely coincides with the homonymous geographical ...
, where there allegedly existed the tradition of smashing a banker's bench if he defaulted on payment so that the public could see that the banker, the owner of the bench, was no longer in a condition to continue his business, although some dismiss this as a
false etymology A false etymology (fake etymology, popular etymology, etymythology, pseudo-etymology, or par(a)etymology) is a popular but false belief about the origin or derivation of a specific word. It is sometimes called a folk etymology, but this is also a ...
.


History

In
Ancient Greece Ancient Greece ( el, Ἑλλάς, Hellás) was a northeastern Mediterranean civilization, existing from the Greek Dark Ages of the 12th–9th centuries BC to the end of classical antiquity ( AD 600), that comprised a loose collection of cu ...
, bankruptcy did not exist. If a man owed and he could not pay, he and his wife, children or servants were forced into "
debt slavery Debt bondage, also known as debt slavery, bonded labour, or peonage, is the pledge of a person's services as security for the repayment for a debt or other obligation. Where the terms of the repayment are not clearly or reasonably stated, the per ...
", until the creditor recouped losses through their physical labour. Many city-states in ancient Greece limited debt slavery to a period of five years; debt slaves had protection of life and limb, which regular slaves did not have. However, servants of the debtor could be retained beyond that deadline by the creditor and were often forced to serve their new lord for a lifetime, usually under significantly harsher conditions. An exception to this rule was
Athens Athens ( ; el, Αθήνα, Athína ; grc, Ἀθῆναι, Athênai (pl.) ) is both the capital and largest city of Greece. With a population close to four million, it is also the seventh largest city in the European Union. Athens dominates a ...
, which by the
laws Law is a set of rules that are created and are enforceable by social or governmental institutions to regulate behavior,Robertson, ''Crimes against humanity'', 90. with its precise definition a matter of longstanding debate. It has been vari ...
of
Solon Solon ( grc-gre, Σόλων;  BC) was an Athenian statesman, constitutional lawmaker and poet. He is remembered particularly for his efforts to legislate against political, economic and moral decline in Archaic Athens.Aristotle ''Politic ...
forbade enslavement for debt; as a consequence, most Athenian slaves were foreigners (Greek or otherwise). The
Statute of Bankrupts The Statute of Bankrupts or An Acte againste suche persones as doo make Bankrupte, 34 & 35 Henry VIII, c. 4, was an Act passed by the Parliament of England in 1542. It was the first statute under English law dealing with bankruptcy or insolvenc ...
of 1542 was the first statute under
English law English law is the common law legal system of England and Wales, comprising mainly criminal law and civil law, each branch having its own courts and procedures. Principal elements of English law Although the common law has, historically, b ...
dealing with bankruptcy or
insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-shee ...
. Bankruptcy is also documented in
East Asia East Asia is the eastern region of Asia, which is defined in both geographical and ethno-cultural terms. The modern states of East Asia include China, Japan, Mongolia, North Korea, South Korea, and Taiwan. China, North Korea, South Korea ...
. According to
al-Maqrizi Al-Maqrīzī or Maḳrīzī (Arabic: ), whose full name was Taqī al-Dīn Abū al-'Abbās Aḥmad ibn 'Alī ibn 'Abd al-Qādir ibn Muḥammad al-Maqrīzī (Arabic: ) (1364–1442) was a medieval Egyptian Arab historian during the Mamluk era, kn ...
, the
Yassa Yassa (alternatively: ''Yasa'', ''Yasaq'', ''Jazag'', ''Zasag'', mn, Их засаг, ''Ikh Zasag'') was the oral law code of the Mongols declared in public in Bukhara by Genghis Khan'' de facto'' law of the Mongol Empire even though the "law" ...
of
Genghis Khan Genghis Khan (born Temüjin; ; xng, Temüjin, script=Latn; ., name=Temujin – August 25, 1227) was the founder and first Great Khan (Emperor) of the Mongol Empire, which became the List of largest empires, largest contiguous empire in history a ...
contained a provision that mandated the
death penalty Capital punishment, also known as the death penalty, is the state-sanctioned practice of deliberately killing a person as a punishment for an actual or supposed crime, usually following an authorized, rule-governed process to conclude that ...
for anyone who became bankrupt three times. A failure of a nation to meet bond repayments has been seen on many occasions. In a similar way,
Philip II of Spain Philip II) in Spain, while in Portugal and his Italian kingdoms he ruled as Philip I ( pt, Filipe I). (21 May 152713 September 1598), also known as Philip the Prudent ( es, Felipe el Prudente), was King of Spain from 1556, King of Portugal from ...
had to declare four state bankruptcies in 1557, 1560, 1575 and 1596. According to Kenneth S. Rogoff, "Although the development of international capital markets was quite limited prior to 1800, we nevertheless catalog the various defaults of
France France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...
,
Portugal Portugal, officially the Portuguese Republic ( pt, República Portuguesa, links=yes ), is a country whose mainland is located on the Iberian Peninsula of Southwestern Europe, and whose territory also includes the Atlantic archipelagos of th ...
,
Prussia Prussia, , Old Prussian: ''Prūsa'' or ''Prūsija'' was a German state on the southeast coast of the Baltic Sea. It formed the German Empire under Prussian rule when it united the German states in 1871. It was ''de facto'' dissolved by an e ...
,
Spain , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = '' Plus ultra'' (Latin)(English: "Further Beyond") , national_anthem = (English: "Royal March") , ...
, and the early Italian city-states. At the edge of Europe, Egypt, Russia, and Turkey have histories of chronic default as well."


Modern law and debt restructuring

The principal focus of modern insolvency legislation and business
debt restructuring Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continu ...
practices no longer rests on the elimination of insolvent entities, but on the remodeling of the financial and organizational structure of debtors experiencing
financial distress Financial distress is a term in corporate finance used to indicate a condition when promises to creditors of a company are broken or honored with difficulty. If financial distress cannot be relieved, it can lead to bankruptcy. Financial distress ...
so as to permit the rehabilitation and continuation of the business. For private households, it is important to assess the underlying problems and to minimize the risk of financial distress to re-occur. It has been stressed that debt advice, a supervised rehabilitation period, financial education and social help to find sources of income and to improve the management of household expenditures must be equally provided during this period of rehabilitation (Refiner ''et al.'', 2003; Gerhardt, 2009; Frade, 2010). In most EU Member States, debt discharge is conditioned by a partial payment obligation and by a number of requirements concerning the debtor's behavior. In the United States (US), discharge is conditioned to a lesser extent. The spectrum is broad in the EU, with the UK coming closest to the US system (Reifner et al., 2003; Gerhardt, 2009; Frade, 2010). The Other Member States do not provide the option of a debt discharge. Spain, for example, passed a bankruptcy law (''ley concurs'') in 2003 which provides for debt settlement plans that can result in a reduction of the debt (maximally half of the amount) or an extension of the payment period of maximally five years (Gerhardt, 2009), but it does not foresee debt discharge. In the US, it is very difficult to discharge federal or federally guaranteed student loan debt by filing bankruptcy. Unlike most other debts, those student loans may be discharged only if the person seeking discharge establishes specific grounds for discharge under the ''Brunner'' test, under which the court evaluates three factors: * If required to repay the loan, the borrower cannot maintain a minimal standard of living; * The borrower's financial situation is likely to continue for most or all of the repayment period; and * The borrower has made a good faith effort to repay the student loans. Even if a debtor proves all three elements, a court may permit only a partial discharge of the student loan. Student loan borrowers may benefit from restructuring their payments through a
Chapter 13 Title 11 of the United States Code sets forth the statutes governing the various types of relief for bankruptcy in the United States. Chapter 13 of the United States Bankruptcy Code provides an individual with the opportunity to propose a plan o ...
bankruptcy repayment plan, but few qualify for discharge of part or all of their student loan debt.


Fraud

Bankruptcy
fraud In law, fraud is intentional deception to secure unfair or unlawful gain, or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compen ...
is a
white-collar crime The term "white-collar crime" refers to financially motivated, nonviolent or non-directly violent crime committed by individuals, businesses and government professionals. It was first defined by the sociologist Edwin Sutherland in 1939 as "a ...
most typically involving concealment of assets by a debtor to avoid
liquidation Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistrib ...
in
bankruptcy proceedings Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor ...
. It may include filing of false information, multiple filings in different jurisdictions, bribery, and other acts. While difficult to generalize across jurisdictions, common criminal acts under bankruptcy statutes typically involve concealment of assets, concealment or destruction of documents, conflicts of interest, fraudulent claims, false statements or declarations, and fee fixing or redistribution arrangements. Falsifications on bankruptcy forms often constitute
perjury Perjury (also known as foreswearing) is the intentional act of swearing a false oath or falsifying an affirmation to tell the truth, whether spoken or in writing, concerning matters material to an official proceeding."Perjury The act or an inst ...
. Multiple filings are not in and of themselves criminal, but they may violate provisions of bankruptcy law. In the U.S., bankruptcy fraud statutes are particularly focused on the
mental state A mental state, or a mental property, is a state of mind of a person. Mental states comprise a diverse class, including perception, pain experience, belief, desire, intention, emotion, and memory. There is controversy concerning the exact definiti ...
of particular actions. Bankruptcy fraud is a
federal crime In the United States, a federal crime or federal offense is an act that is made illegal by U.S. federal legislation enacted by both the United States Senate and United States House of Representatives and signed into law by the president. Prosec ...
in the United States. Bankruptcy fraud should be distinguished from '' strategic bankruptcy'', which is not a
criminal In ordinary language, a crime is an unlawful act punishable by a state or other authority. The term ''crime'' does not, in modern criminal law, have any simple and universally accepted definition,Farmer, Lindsay: "Crime, definitions of", in C ...
act since it creates a real (not a fake) bankruptcy state. However, it may still work against the filer. All assets must be disclosed in bankruptcy schedules whether or not the debtor believes the asset has a net value. This is because once a bankruptcy petition is filed, it is for the creditors, not the debtor, to decide whether a particular asset has value. The future ramifications of omitting assets from schedules can be quite serious for the offending debtor. In the United States, a closed bankruptcy may be reopened by motion of a creditor or the U.S. trustee if a debtor attempts to later assert ownership of such an "unscheduled asset" after being discharged of all debt in the bankruptcy. The trustee may then seize the asset and liquidate it for the benefit of the (formerly discharged) creditors. Whether or not a concealment of such an asset should also be considered for prosecution as fraud or
perjury Perjury (also known as foreswearing) is the intentional act of swearing a false oath or falsifying an affirmation to tell the truth, whether spoken or in writing, concerning matters material to an official proceeding."Perjury The act or an inst ...
would then be at the discretion of the judge or U.S. Trustee.


By country

In some countries, such as the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and ...
, bankruptcy is limited to individuals; other forms of insolvency proceedings (such as
liquidation Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistrib ...
and
administration Administration may refer to: Management of organizations * Management, the act of directing people towards accomplishing a goal ** Administrative Assistant, traditionally known as a Secretary, or also known as an administrative officer, admini ...
) are applied to companies. In the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...
, ''bankruptcy'' is applied more broadly to formal insolvency proceedings. In some countries, such as in Finland bankruptcy is limited only to companies and individuals who are insolvent are condemned to de facto indentured servitude or minimum social benefits until their debts are paid in full, with accrued interest except when the court decides to show rare clemency by accepting a
debtor A debtor or debitor is a legal entity (legal person) that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor. When the counterpart of this ...
s application for
debt restructuring Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continu ...
, in which case an individual may have the amount of remaining debt reduced or be released from the debt. In France, the cognate French word ''banqueroute'' is used solely for cases of fraudulent bankruptcy, whereas the term ''faillite'' (cognate of "failure") is used for bankruptcy in accordance with the law.


Argentina

In Argentina the national Act "24.522 de Concursos y Quiebras" regulates the Bankruptcy and the Reorganization of the individuals and companies, public entities are not included.


Armenia

A person may be declared bankrupt with an application submitted to the court by the creditor or with an application to recognize his own bankruptcy. Legal and natural persons, including individual entrepreneurs, who have an indisputable payment obligation exceeding 60 days and amounting to more than one million AMD can be declared bankrupt. All creditors, including the state and municipalities, to whom the person has an obligation that meets the above-mentioned minimum criteria can submit an application to declare a person bankrupt by compulsory procedure. Basically, these obligations are derived from the legal acts of the court, transactions, the obligation of the debtor to pay taxes, duties, and other fees defined by law. At the same time, when being declared bankrupt with a voluntary bankruptcy application, the applicant bears the obligation to prove the fact that the value of his assets is less than his assets by one million AMD or more.


Australia

In Australia, bankruptcy is a status which applies to individuals and is governed by the federal ''Bankruptcy Act 1966''. Companies do not go bankrupt but rather go into
liquidation Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistrib ...
or
administration Administration may refer to: Management of organizations * Management, the act of directing people towards accomplishing a goal ** Administrative Assistant, traditionally known as a Secretary, or also known as an administrative officer, admini ...
, which is governed by the federal ''
Corporations Act 2001 The ''Corporations Act 2001'' (Cth) is an Act of the Parliament of Australia, which sets out the laws dealing with business entities in the Commonwealth of Australia. The company is the Act's primary focus, but other entities, such as partner ...
''. If a person commits an act of bankruptcy, then a creditor can apply to the Federal Circuit Court or the Federal Court for a sequestration order. Acts of bankruptcy are defined in the legislation, and include the failure to comply with a bankruptcy notice. A bankruptcy notice can be issued where, among other cases, a person fails to pay a judgment debt of at least $5,000. A person can also seek to have themselves declared bankrupt for any amount of debt by lodging a debtor's petition with the "Official Receiver", which is the Australian Financial Security Authority (AFSA). All bankrupts must lodge a Statement of Affairs document, also known as a Bankruptcy Form, with AFSA, which includes important information about their assets and liabilities. A bankruptcy cannot be discharged until this document has been lodged. Ordinarily, a bankruptcy lasts three years from the filing of the Statement of Affairs with AFSA. A Bankruptcy Trustee (in most cases, the Official Trustee at AFSA) is appointed to deal with all matters regarding the administration of the bankrupt estate. The Trustee's job includes notifying creditors of the estate and dealing with creditor inquiries; ensuring that the bankrupt complies with their obligations under the Bankruptcy Act; investigating the bankrupt's financial affairs; realising funds to which the estate is entitled under the Bankruptcy Act and distributing dividends to creditors if sufficient funds become available. For the duration of their bankruptcy, all bankrupts have certain restrictions placed upon them. For example, a bankrupt must obtain the permission of their trustee to travel overseas. Failure to do so may result in the bankrupt being stopped at the airport by the Australian Federal Police. Additionally, a bankrupt is required to provide their trustee with details of income and assets. If the bankrupt does not comply with the Trustee's request to provide details of income, the trustee may have grounds to lodge an Objection to Discharge, which has the effect of extending the bankruptcy for a further three or five years depending on the type of Objection. The realisation of funds usually comes from two main sources: the bankrupt's assets and the bankrupt's wages. There are certain assets that are protected, referred to as ''protected assets''. These include household furniture and appliances, tools of the trade and vehicles up to a certain value. All other assets of value can be sold. If a house, including the main residence, or car is above a certain value, a third party can buy the interest from the estate in order for the bankrupt to utilise the asset. If this is not done, the interest vests in the estate and the trustee is able to take possession of the asset and sell it. The bankrupt must pay income contributions if their income is above a certain threshold. If the bankrupt fails to pay, the trustee can ask the Official Receiver to issue a notice to garnishee the bankrupt's wages. If that is not possible, the Trustee may seek to extend the bankruptcy for a further three or five years. Bankruptcies can be annulled, and the bankrupt released from bankruptcy, prior to the expiration of the normal three-year period if all debts are paid out in full. Sometimes a bankrupt may be able to raise enough funds to make an Offer of Composition to creditors, which would have the effect of paying the creditors some of the money they are owed. If the creditors accept the offer, the bankruptcy can be annulled after the funds are received. After the bankruptcy is annulled or the bankrupt has been automatically discharged, the bankrupt's credit report status is shown as "discharged bankrupt" for some years. The maximum number of years this information can be held is subject to the retention limits under the Privacy Act. How long such information is on a credit report may be shorter, depending on the issuing company, but the report must cease to record that information based on the criteria in the Privacy Act.


Brazil

In
Brazil Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...
, the Bankruptcy Law (11.101/05) governs court-ordered or out-of-court receivership and bankruptcy and only applies to public companies (publicly traded companies) with the exception of financial institutions, credit cooperatives, consortia, supplementary scheme entities, companies administering health care plans, equity companies and a few other legal entities. It does not apply to state-run companies. Current law covers three legal proceedings. The first one is bankruptcy itself ("Falência"). Bankruptcy is a court-ordered liquidation procedure for an insolvent business. The final goal of bankruptcy is to liquidate company assets and pay its creditors. The second one is Court-ordered Restructuring (''Recuperação Judicial''). The goal is to overcome the business crisis situation of the debtor in order to allow the continuation of the producer, the employment of workers and the interests of creditors, leading, thus, to preserving company, its corporate function and develop economic activity. It's a court procedure required by the debtor which has been in business for more than two years and requires approval by a judge. The Extrajudicial Restructuring (''Recuperação Extrajudicial'') is a private negotiation that involves creditors and debtors and, as with court-ordered restructuring, also must be approved by courts.


Canada

Bankruptcy, also referred to as insolvency in Canada, is governed by the
Bankruptcy and Insolvency Act The ''Bankruptcy and Insolvency Act'' (BIA; french: Loi sur la faillite et l'insolvabilité) (the ''Act'') is one of the statutes that regulates the law on bankruptcy and insolvency in Canada. It governs bankruptcies, consumer and commercial prop ...
and is applicable to businesses and individuals. For example,
Target Canada Target Canada Co. was the Canadian subsidiary of the Target Corporation, the eighth-largest retailer in the United States. Formerly headquartered in Mississauga, Ontario, the subsidiary was formed with the acquisition of Zellers store leases f ...
, the Canadian subsidiary of the
Target Corporation Target Corporation ( doing business as Target and stylized in all lowercase since 2018) is an American big box department store chain headquartered in Minneapolis, Minnesota. It is the seventh largest retailer in the United States, and a com ...
, the second-largest
discount retailer A discount store or discounter offers a retail format in which products are sold at prices that are in principle lower than an actual or supposed "full retail price". Discounters rely on bulk purchasing and efficient distribution to keep down cost ...
in the United States filed for bankruptcy on January 15, 2015, and closed all of its stores by April 12. The office of the
Superintendent of Bankruptcy The Superintendent of Bankruptcy is a Canadian government position charged to ensure that bankruptcies Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of ...
, a federal agency, is responsible for overseeing that bankruptcies are administered in a fair and orderly manner by all licensed Trustees in Canada. Trustees in bankruptcy, 1041 individuals licensed to administer insolvencies, bankruptcy and proposal estates are governed by the
Bankruptcy and Insolvency Act The ''Bankruptcy and Insolvency Act'' (BIA; french: Loi sur la faillite et l'insolvabilité) (the ''Act'') is one of the statutes that regulates the law on bankruptcy and insolvency in Canada. It governs bankruptcies, consumer and commercial prop ...
of Canada. Bankruptcy is filed when a person or a company becomes insolvent and cannot pay their debts as they become due and if they have at least $1,000 in debt. In 2011, the Superintendent of bankruptcy reported that trustees in Canada filed 127,774 insolvent estates. Consumer estates were the vast majority, with 122 999 estates. The consumer portion of the 2011 volume is divided into 77,993 bankruptcies and 45,006 consumer proposals. This represented a reduction of 8.9% from 2010. Commercial estates filed by Canadian trustees in 2011 4,775 estates, 3,643 bankruptcies and 1,132 Division 1 proposals. This represents a reduction of 8.6% over 2010. ;Duties of trustees: Some of the duties of the trustee in bankruptcy are to: * Review the file for any fraudulent preferences or reviewable transactions * Chair meetings of creditors * Sell any non-exempt assets * Object to the bankrupt's discharge * Distribute funds to creditors ;Creditors' meetings: Creditors become involved by attending creditors' meetings. The
trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to ...
calls the first meeting of creditors for the following purposes: * To consider the affairs of the bankrupt * To affirm the appointment of the trustee or substitute another in place thereof * To appoint inspectors * To give such directions to the trustee as the creditors may see fit with reference to the administration of the estate. ;Consumer proposals: In Canada, a person can file a consumer proposal as an alternative to bankruptcy. A consumer proposal is a negotiated settlement between a debtor and their creditors. A typical proposal would involve a debtor making monthly payments for a maximum of five years, with the funds distributed to their creditors. Even though most proposals call for payments of less than the full amount of the debt owing, in most cases, the creditors accept the deal—because if they do not, the next alternative may be personal bankruptcy, in which the creditors get even less money. The creditors have 45 days to accept or reject the consumer proposal. Once the proposal is accepted by both the creditors and the Court, the debtor makes the payments to the Proposal Administrator each month (or as otherwise stipulated in their proposal), and the general creditors are prevented from taking any further legal or collection action. If the proposal is rejected, the debtor is returned to his prior insolvent state and may have no alternative but to declare personal bankruptcy. A consumer proposal can only be made by a debtor with debts to a maximum of $250,000 (not including the mortgage on their principal residence). If debts are greater than $250,000, the proposal must be filed under Division 1 of Part III of the
Bankruptcy and Insolvency Act The ''Bankruptcy and Insolvency Act'' (BIA; french: Loi sur la faillite et l'insolvabilité) (the ''Act'') is one of the statutes that regulates the law on bankruptcy and insolvency in Canada. It governs bankruptcies, consumer and commercial prop ...
. An Administrator is required in the Consumer Proposal, and a Trustee in the Division I Proposal (these are virtually the same although the terms are not interchangeable). A Proposal Administrator is almost always a licensed
trustee Trustee (or the holding of a trusteeship) is a legal term which, in its broadest sense, is a synonym for anyone in a position of trust and so can refer to any individual who holds property, authority, or a position of trust or responsibility to ...
in bankruptcy, although the
Superintendent of Bankruptcy The Superintendent of Bankruptcy is a Canadian government position charged to ensure that bankruptcies Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of ...
may appoint other people to serve as administrators. In 2006, there were 98,450 personal insolvency filings in Canada: 79,218 bankruptcies and 19,232 consumer proposals. ;Commercial restructuring: In Canada, bankruptcy always means liquidation. There is no way for a company to emerge from bankruptcy after restructuring, as is the case in the United States with a Chapter 11 bankruptcy filing. Canada does, however, have laws that allow for businesses to restructure and emerge later with a smaller debtload and a more positive financial future. While not technically a form of bankruptcy, businesses with $5M or more in debt may make use of the
Companies' Creditors Arrangement Act The ''Companies' Creditors Arrangement Act'' (CCAA; french: Loi sur les arrangements avec les créanciers des compagnies) is a statute of the Parliament of Canada that allows insolvent corporations owing their creditors in excess of $5 million to ...
to halt all debt recovery efforts against the company while they formulate a plan to restructure.


China

The People's Republic of China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...
legalized bankruptcy in 1986, and a revised law that was more expansive and complete was enacted in 2007.


Ireland

Bankruptcy in Ireland applies only to
natural person In jurisprudence, a natural person (also physical person in some Commonwealth countries, or natural entity) is a person (in legal meaning, i.e., one who has its own legal personality) that is an individual human being, distinguished from the b ...
s. Other insolvency processes including
liquidation Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistrib ...
and
examinership Examinership is a process in Irish law whereby the protection of the Court is obtained to assist the survival of a company. It allows a company to restructure with the approval of the High Court. To obtain the appointment of an examiner it i ...
are used to deal with corporate insolvency. Irish bankruptcy law has been the subject of significant comment, from both government sources and the media, as being in need of reform. Part 7 of the Civil Law (Miscellaneous Provisions) Act 2011 has started this process and the government has committed to further reform.


India

The
Parliament of India The Parliament of India ( IAST: ) is the supreme legislative body of the Republic of India. It is a bicameral legislature composed of the president of India and two houses: the Rajya Sabha (Council of States) and the Lok Sabha (House of ...
in the first week of May 2016 passed Insolvency and Bankruptcy Code 2016 (New Code). Earlier a clear law on corporate bankruptcy did not exist, even though individual bankruptcy laws have been in existence since 1874. The earlier law in force was enacted in 1920 called the Provincial Insolvency Act. The legal definitions of the terms bankruptcy, insolvency, liquidation and dissolution are contested in the Indian legal system. There is no regulation or statute legislated upon bankruptcy which denotes a condition of inability to meet a demand of a creditor as is common in many other jurisdictions. Winding up of companies was in the jurisdiction of the courts which can take a decade even after the company has actually been declared insolvent. On the other hand, supervisory restructuring at the behest of the
Board of Industrial and Financial Reconstruction The Board for Industrial and Financial Reconstruction (BIFR) was a development finance institution under the ownership of Ministry of Finance, Government of India, part of the Department of Financial Services of the Ministry of Finance. Set up i ...
is generally undertaken using receivership by a public entity.


The Netherlands

Dutch bankruptcy law is governed by the Dutch Bankruptcy Code (''Faillissementswet''). The code covers three separate legal proceedings. * The first is the bankruptcy (''faillissement''). The goal of the bankruptcy is the liquidation of the assets of the company. The bankruptcy applies only to companies. * The second legal proceeding in the ''Faillissementswet'' is the ''surseance van betaling''. The ''surseance van betaling'' only applies to companies. Its goal is to reach an agreement with the creditors of the company. It is comparable to filing for protection against creditors. * The third proceeding is the ''schuldsanering''. This proceeding is designed for individuals only and is the result of a court ruling. The judge appoints a monitor. The monitor is an independent third party who monitors the individual's ongoing business and decides about financial matters during the period of the ''schuldsanering''. The individual can travel out of the country freely after the judge's decision on the case.


Russia

Federal Law No. 127-FZ "On Insolvency (Bankruptcy)" dated 26 October 2002 (as amended) (the "Bankruptcy Act"), replacing the previous law in 1998, to better address the above problems and a broader failure of the action. Russian insolvency law is intended for a wide range of borrowers: individuals and companies of all sizes, with the exception of state-owned enterprises, government agencies, political parties and religious organizations. There are also special rules for insurance companies, professional participants of the securities market, agricultural organizations and other special laws for financial institutions and companies in the
natural monopolies A natural monopoly is a monopoly in an industry in which high infrastructural costs and other barriers to entry relative to the size of the market give the largest supplier in an industry, often the first supplier in a market, an overwhelming adv ...
in the energy industry. Federal Law No. 40-FZ "On Insolvency (Bankruptcy)" dated 25 February 1999 (as amended) (the "Insolvency Law of Credit Institutions") contains special provisions in relation to the opening of insolvency proceedings in relation to the credit company. Insolvency Provisions Act, credit organizations used in conjunction with the provisions of the Bankruptcy Act. Bankruptcy law provides for the following stages of insolvency proceedings: *Monitoring procedure or Supervision (nablyudeniye); *The economic recovery (finansovoe ozdorovleniye); *External control (vneshneye upravleniye); *Liquidation (konkursnoye proizvodstvo) and *Amicable Agreement (mirovoye soglasheniye). The main face of the bankruptcy process is the insolvency officer (trustee in bankruptcy, bankruptcy manager). At various stages of bankruptcy, he must be determined: the temporary officer in Monitoring procedure, external manager in External control, the receiver or administrative officer in The economic recovery, the liquidator. During the bankruptcy trustee in bankruptcy (insolvency officer) has a decisive influence on the movement of assets (property) of the debtor - the debtor and has a key influence on the economic and legal aspects of its operations.


South Africa


Switzerland

Under
Swiss Swiss may refer to: * the adjectival form of Switzerland *Swiss people Places * Swiss, Missouri *Swiss, North Carolina * Swiss, West Virginia *Swiss, Wisconsin Other uses * Swiss-system tournament, in various games and sports * Swiss Internation ...
law, bankruptcy can be a consequence of
insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-shee ...
. It is a court-ordered form of debt enforcement proceedings that applies, in general, to registered commercial entities only. In a bankruptcy, all assets of the debtor are liquidated under the administration of the creditors, although the law provides for debt restructuring options similar to those under Chapter 11 of the U.S. Bankruptcy code.


Sweden

In Sweden, bankruptcy (Swedish: konkurs) is a formal process that may involve a company or individual. It is not the same as
insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-shee ...
, which is inability to pay debts that should have been paid. A creditor or the company itself can apply for bankruptcy. An external bankruptcy manager takes over the company or the assets of the person, and tries to sell as much as possible. A person or a company in bankruptcy can not access its assets (with some exceptions). The formal bankruptcy process is rarely carried out for individuals. Creditors can claim money through the Enforcement Administration anyway, and creditors do not usually benefit from the bankruptcy of individuals because there are costs of a bankruptcy manager which has priority. Unpaid debts remain after bankruptcy for individuals. People who are deeply in debt can obtain a debt arrangement procedure (Swedish: skuldsanering). On application, they obtain a payment plan under which they pay as much as they can for five years, and then all remaining debts are cancelled. Debts that derive from a ban on business operations (issued by court, commonly for tax fraud or fraudulent business practices) or owed to a crime victim as compensation for damages, are exempted from this—and, as before this process was introduced in 2006, remain lifelong. Debts that have not been claimed during a 3-10 year period are cancelled. Often crime victims stop their claims after a few years since criminals often do not have job incomes and might be hard to locate, while banks make sure their claims are not cancelled. The most common reasons for personal insolvency in Sweden are illness, unemployment, divorce or company bankruptcy. For companies, formal bankruptcy is a normal effect of insolvency, even if there is a reconstruction mechanism where the company can be given time to solve its situation, e.g. by finding an investor. The formal bankruptcy involves contracting a bankruptcy manager, who makes certain that assets are sold and money divided by the priority the law claims, and no other way. Banks have such a priority. After a finished bankruptcy for a company, it is terminated. The activities might continue in a new company which has bought important assets from the bankrupted company.


United Arab Emirates

The United Arab Emirates Bankruptcy Law came into force on 29 December 2016, and created a single law governing bankruptcy procedures, which had previously been spread across multiple sources. There are two court procedures: first, a procedure for a company that is not yet insolvent, known as a protective composition, and second, a formal bankruptcy that is split into a rescue process (similar to protective composition) or liquidation. Directors of a company can be held personally liable for its debts. The Bankruptcy Law does not apply to government bodies, or to companies trading in free zones such as the
Dubai International Financial Centre The Dubai International Financial Centre (DIFC) is a special economic zone in Dubai covering , established in 2004 as a financial hub for companies operating throughout the Middle East, Africa and South Asia (MEASA) markets. DIFC is regulated b ...
or the
Abu Dhabi Global Market Abu Dhabi Global Market (ADGM) is an international financial centre and free zone located on Al Maryah Island in the United Arab Emirates's capital, Abu Dhabi. The financial centre was established in 2013 and became fully operational in Octobe ...
, which have their own insolvency laws.


United Kingdom

Bankruptcy in the United Kingdom Bankruptcy in the United Kingdom is divided into separate local regimes for England and Wales, for Northern Ireland, and for Scotland. There is also a UK insolvency law which applies across the United Kingdom, since bankruptcy refers only to inso ...
(in a strict legal sense) relates only to individuals (including sole proprietors) and
partnership A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments ...
s. Companies and other
corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and ...
s enter into differently named legal insolvency procedures:
liquidation Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistrib ...
and
administration Administration may refer to: Management of organizations * Management, the act of directing people towards accomplishing a goal ** Administrative Assistant, traditionally known as a Secretary, or also known as an administrative officer, admini ...
(
administration order As a legal concept, administration is a procedure under the insolvency laws of a number of common law jurisdictions, similar to bankruptcy in the United States. It functions as a rescue mechanism for insolvent entities and allows them to carry on ...
and
administrative receivership In law, receivership is a situation in which an institution or enterprise is held by a receiver—a person "placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights"—especially in c ...
). However, the term 'bankruptcy' is often used when referring to companies in the media and in general conversation. Bankruptcy in Scotland is referred to as sequestration. To apply for bankruptcy in Scotland, an individual must have more than £1,500 of debt. A
trustee in bankruptcy A trustee in bankruptcy is an entity, often an individual, in charge of administering a bankruptcy estate. Canada In Canada, a licensed insolvency trustee (LIT) is an individual or a corporation licensed by the official superintendent to hold ...
must be either an
Official Receiver An officer of the Insolvency Service of the United Kingdom, an official receiver (OR) is an officer of the court to which they are attached. The OR is answerable to the courts for carrying out the courts' orders and for fulfilling their duties ...
(a civil servant) or a licensed insolvency practitioner. Current law in England and Wales derives in large part from the
Insolvency Act 1986 The Insolvency Act 1986c 45 is an Act of the Parliament of the United Kingdom that provides the legal platform for all matters relating to personal and corporate insolvency in the UK. History The Insolvency Act 1986 followed the publication and ...
. Following the introduction of the
Enterprise Act 2002 The Enterprise Act 2002 is an Act of the Parliament of the United Kingdom which made major changes to UK competition law with respect to mergers and also changed the law governing insolvency bankruptcy. It made cartels illegal with a maximum pri ...
, a UK bankruptcy now normally last no longer than 12 months, and may be less if the Official Receiver files in court a certificate that investigations are complete. It was expected that the UK Government's liberalization of the UK bankruptcy regime would increase the number of bankruptcy cases; initially, cases increased, as the Insolvency Service statistics appear to bear out. Since 2009, the introduction of the
Debt Relief Order Debt relief orders (DROs) are a simplified, quicker and cheaper alternative to bankruptcy as an insolvency measure in the United Kingdom, which came into effect in England and Wales on 6 April 2009, and are also offered in Northern Ireland. Debt r ...
has resulted in a dramatic fall in bankruptcies, the latest estimates for year 2014/15 being significantly less than 30,000 cases. ;Pensions: The UK bankruptcy law was changed in May 2000, effective May 29, 2000. Debtors may now retain occupational
pension A pension (, from Latin ''pensiō'', "payment") is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the form of periodic payments ...
s while in bankruptcy, except in rare cases. ;Proposed reform: The Government have updated legislation (2016) to streamline the application process for UK bankruptcy. UK residents now need to apply online for bankruptcy - there is an upfront fee of £680. The process for residents of Northern Ireland differs - applicants must follow the older process of applying through the courts.


United States

Bankruptcy in the United States is a matter placed under
federal jurisdiction Federal jurisdiction is the jurisdiction of the federal government in any country that uses federalism. Such a country is known as a Federation. Federal jurisdiction by country All federations, by definition, must have some form of federal jurisd ...
by the
United States Constitution The Constitution of the United States is the supreme law of the United States of America. It superseded the Articles of Confederation, the nation's first constitution, in 1789. Originally comprising seven articles, it delineates the natio ...
(in Article 1, Section 8, Clause 4), which empowers
Congress A congress is a formal meeting of the representatives of different countries, constituent states, organizations, trade unions, political parties, or other groups. The term originated in Late Middle English to denote an encounter (meeting of ...
to enact "uniform Laws on the subject of Bankruptcies throughout the United States". Congress has enacted
statutes A statute is a formal written enactment of a legislative authority that governs the legal entities of a city, state, or country by way of consent. Typically, statutes command or prohibit something, or declare policy. Statutes are rules made ...
governing bankruptcy, primarily in the form of the Bankruptcy Code, located at Title 11 of the
United States Code In the law of the United States, the Code of Laws of the United States of America (variously abbreviated to Code of Laws of the United States, United States Code, U.S. Code, U.S.C., or USC) is the official compilation and codification of the ...
. A debtor declares bankruptcy to obtain relief from debt, and this is normally accomplished either through a discharge of the debt or through a restructuring of the debt. When a debtor files a voluntary petition, their bankruptcy case commences.


Debts and exemptions

While bankruptcy cases are always filed in
United States Bankruptcy Court United States bankruptcy courts are courts created under Article I of the United States Constitution. The current system of bankruptcy courts was created by the United States Congress in 1978, effective April 1, 1984. United States bankruptcy c ...
(an adjunct to the U.S. District Courts), bankruptcy cases, particularly with respect to the validity of claims and exemptions, are often dependent upon State law. A Bankruptcy Exemption defines the property a debtor may retain and preserve through bankruptcy. Certain real and personal property can be exempted on "Schedule C" of a debtor's bankruptcy forms, and effectively be taken outside the debtor's bankruptcy estate. Bankruptcy exemptions are available only to individuals filing bankruptcy. There are two alternative systems that can be used to "exempt" property from a bankruptcy estate, federal exemptions (available in some states but not all), and state exemptions (which vary widely between states). For example, Maryland and Virginia, which are adjoining states, have different personal exemption amounts that cannot be seized for payment of debts. This amount is the first $6,000 in property or cash in Maryland, but normally only the first $5,000 in Virginia. State law therefore plays a major role in many bankruptcy cases, such that there may be significant differences in the outcome of a bankruptcy case depending upon the state in which it is filed. After a bankruptcy petition is filed, the court schedules a hearing called a ''341 meeting'' or ''meeting of creditors'', at which the bankruptcy trustee and creditors review the petitioner's petition and supporting schedules, question the petitioner, and can challenge exemptions they believe are improper.


Chapters

There are six types of bankruptcy under the Bankruptcy Code, located at Title 11 of the
United States Code In the law of the United States, the Code of Laws of the United States of America (variously abbreviated to Code of Laws of the United States, United States Code, U.S. Code, U.S.C., or USC) is the official compilation and codification of the ...
: * Chapter 7: basic liquidation for individuals and businesses; also known as straight bankruptcy; it is the simplest and quickest form of bankruptcy available * Chapter 9: municipal bankruptcy; a federal mechanism for the resolution of municipal debts *
Chapter 11 Chapter 11 of the United States Bankruptcy Code (Title 11 of the United States Code) permits reorganization under the bankruptcy laws of the United States. Such reorganization, known as Chapter 11 bankruptcy, is available to every business, wheth ...
: rehabilitation or reorganization, used primarily by business debtors but sometimes by individuals with substantial debts and assets; known as corporate bankruptcy, it is a form of corporate financial reorganization that typically allows companies to continue to function while they follow debt repayment plans *
Chapter 12 Chapter 12 of Title 11 of the United States Code, or simply chapter 12, is a chapter of the Bankruptcy Code. It is similar to Chapter 13 in structure, but it offers additional benefits to farmers and fishermen in certain circumstances, beyond th ...
: rehabilitation for family farmers and fishermen; *
Chapter 13 Title 11 of the United States Code sets forth the statutes governing the various types of relief for bankruptcy in the United States. Chapter 13 of the United States Bankruptcy Code provides an individual with the opportunity to propose a plan o ...
: rehabilitation with a payment plan for individuals with a regular source of income; enables individuals with regular income to develop a plan to repay all or part of their debts; also known as Wage Earner Bankruptcy * Chapter 15: ancillary and other international cases; provides a mechanism for dealing with bankruptcy debtors and helps foreign debtors clear debts An important feature applicable to all types of bankruptcy filings is the
automatic stay In United States bankruptcy law, an automatic stay is an automatic injunction that halts actions by creditors, with certain exceptions, to collect debts from a debtor who has declared bankruptcy. Under section 362 of the United States Bankruptcy ...
. The automatic stay means that the mere request for bankruptcy protection automatically halts most lawsuits, repossessions, foreclosures, evictions, garnishments, attachments, utility shut-offs, and debt collection activity. The most common types of
personal bankruptcy Personal bankruptcy law allows, in certain jurisdictions, an individual to be declared bankrupt. Virtually every country with a modern legal system features some form of debt relief for individuals. Personal bankruptcy is distinguished from corporat ...
for individuals are Chapter 7 and Chapter 13. Chapter 7, known as a "straight bankruptcy", involves the discharge of certain debts without repayment. Chapter 13 involves a plan of repayment of debts over a period of years. Whether a person qualifies for Chapter 7 or Chapter 13 is in part determined by income. As many as 65% of all US consumer bankruptcy filings are Chapter 7 cases. Before a consumer may obtain bankruptcy relief under either Chapter 7 or Chapter 13, the debtor is to undertake
credit counseling Credit counseling (known in the United Kingdom as Debt counseling) is commonly a process that is used to help individual debtors with debt settlement through education, budgeting and the use of a variety of tools with the goal to reduce and ultima ...
with approved counseling agencies prior to filing a bankruptcy petition and to undertake education in personal financial management from approved agencies prior to being granted a discharge of debts under either Chapter 7 or Chapter 13. Some studies of the operation of the credit counseling requirement suggest that it provides little benefit to debtors who receive the counseling because the only realistic option for many is to seek relief under the Bankruptcy Code. Corporations and other business forms normally file under Chapters 7 or 11.


=Chapter 7

= Often called "straight bankruptcy" or "simple bankruptcy", a Chapter 7 bankruptcy potentially allows debtors to eliminate most or all of their debts over a period of as little as three or four months. In a typical consumer bankruptcy, the only debts that survive a Chapter 7 are
student loan A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. It may differ from other types of loans in the fact that the interest r ...
s,
child support Child support (or child maintenance) is an ongoing, periodic payment made by a parent for the financial benefit of a child (or parent, caregiver, guardian) following the end of a marriage or other similar relationship. Child maintenance is paid d ...
obligations, some tax bills, and criminal fines. Credit cards, pay day loans, personal loans, medical bills, and just about all other bills are discharged. In Chapter 7, a debtor surrenders non-exempt property to a bankruptcy trustee, who then liquidates the property and distributes the proceeds to the debtor's unsecured creditors. In exchange, the debtor is entitled to a discharge of some debt. However, the debtor is not granted a discharge if guilty of certain types of inappropriate behavior (e.g., concealing records relating to financial condition) and certain debts (e.g., spousal and child support and most student loans). Some taxes are not discharged even though the debtor is generally discharged from debt. Many individuals in financial distress own only exempt property (e.g., clothes, household goods, an older car, or the tools of their trade or profession) and do not have to surrender any property to the trustee. The amount of property that a debtor may exempt varies from state to state (as noted above, Virginia and Maryland have a $1,000 difference.) Chapter 7 relief is available only once in any eight-year period. Generally, the rights of secured creditors to their collateral continues, even though their debt is discharged. For example, absent some arrangement by a debtor to surrender a car or "reaffirm" a debt, the creditor with a
security interest In finance, a security interest is a legal right granted by a debtor to a creditor over the debtor's property (usually referred to as the ''collateral'') which enables the creditor to have recourse to the property if the debtor defaults in makin ...
in the debtor's car may repossess the car even if the debt to the creditor is discharged. Ninety-one percent of US individuals who petition for relief under Chapter 7 hire an attorney to file their petitions. The typical cost of an attorney is $1,170.00. Alternatives to filing with an attorney are: filing pro se, hiring a non-lawyer petition preparer, or using online software to generate the petition. To be eligible to file a consumer bankruptcy under Chapter 7, a debtor must qualify under a statutory "means test". The means test was intended to make it more difficult for a significant number of financially distressed individual debtors whose debts are primarily consumer debts to qualify for relief under Chapter 7 of the Bankruptcy Code. The "means test" is employed in cases where an individual with primarily consumer debts has more than the average annual income for a household of equivalent size, computed over a 180-day period prior to filing. If the individual must "take" the "means test", their average monthly income over this 180-day period is reduced by a series of allowances for living expenses and secured debt payments in a very complex calculation that may or may not accurately reflect that individual's actual monthly budget. If the results of the means test show no disposable income (or in some cases a very small amount) then the individual qualifies for Chapter 7 relief. An individual who fails the means test will have their Chapter 7 case dismissed, or may have to convert the case to a Chapter 13 bankruptcy. If a debtor does not qualify for relief under Chapter 7 of the Bankruptcy Code, either because of the Means Test or because Chapter 7 does not provide a permanent solution to delinquent payments for secured debts, such as mortgages or vehicle loans, the debtor may still seek relief under Chapter 13 of the Code. Generally, a trustee sells most of the debtor's assets to pay off creditors. However, certain debtor assets will be protected to some extent by bankruptcy exemptions. These include Social Security payments, unemployment compensation, limited equity in a home, car, or truck, household goods and appliances, trade tools, and books. However, these exemptions vary from state to state.


=Chapter 11

= In Chapter 11 bankruptcy, the debtor retains ownership and control of assets and is re-termed a
debtor in possession A debtor in possession or DIP in United States bankruptcy law is a person or corporation who has filed a bankruptcy petition, but remains in possession of property upon which a creditor has a lien or similar security interest. A debtor becomes ...
(DIP). The debtor in possession runs the day-to-day operations of the business while creditors and the debtor work with the Bankruptcy Court in order to negotiate and complete a plan. Upon meeting certain requirements (e.g., fairness among creditors, priority of certain creditors) creditors are permitted to vote on the proposed plan. If a plan is confirmed, the debtor continues to operate and pay debts under the terms of the confirmed plan. If a specified majority of creditors do not vote to confirm a plan, additional requirements may be imposed by the court in order to confirm the plan. Debtors filing for Chapter 11 protection a second time are known informally as "Chapter 22" filers. In a corporate or business bankruptcy, an indebted company is typically recapitalized so that it emerges from bankruptcy with more equity and less debt, with potential for dispute over the valuation of the reorganized business.


=Chapter 13

= In Chapter 13, debtors retain ownership and possession of all their assets but must devote some portion of future income to repaying creditors, generally over three to five years. The amount of payment and period of the repayment plan depend upon a variety of factors, including the value of the debtor's property and the amount of a debtor's income and expenses. Under this chapter, the debtor can propose a repayment plan in which to pay creditors over three to five years. If the monthly income is less than the state's median income, the plan is for three years, unless the court finds "just cause" to extend the plan for a longer period. If the debtor's monthly income is greater than the median income for individuals in the debtor's state, the plan must generally be for five years. A plan cannot exceed the five-year limit. Relief under Chapter 13 is available only to individuals with regular income whose debts do not exceed prescribed limits. If the debtor is an individual or a sole proprietor, the debtor is allowed to file for a Chapter 13 bankruptcy to repay all or part of the debts. Secured creditors may be entitled to greater payment than unsecured creditors. In contrast to Chapter 7, the debtor in Chapter 13 may keep all property, whether or not exempt. If the plan appears feasible and if the debtor complies with all the other requirements, the bankruptcy court typically confirms the plan and the debtor and creditors are bound by its terms. Creditors have no say in the formulation of the plan, other than to object to it, if appropriate, on the grounds that it does not comply with one of the Code's statutory requirements. Generally, the debtor makes payments to a trustee who disburses the funds in accordance with the terms of the confirmed plan. When the debtor completes payments pursuant to the terms of the plan, the court formally grant the debtor a discharge of the debts provided for in the plan. However, if the debtor fails to make the agreed upon payments or fails to seek or gain court approval of a modified plan, a bankruptcy court will normally dismiss the case on the motion of the trustee. After a dismissal, creditors may resume pursuit of state law remedies to recover the unpaid debt.


Europe

In 2004, the number of insolvencies reached record highs in many European countries. In
France France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...
, company insolvencies rose by more than 4%, in
Austria Austria, , bar, Östareich officially the Republic of Austria, is a country in the southern part of Central Europe, lying in the Eastern Alps. It is a federation of nine states, one of which is the capital, Vienna, the most populous ...
by more than 10%, and in
Greece Greece,, or , romanized: ', officially the Hellenic Republic, is a country in Southeast Europe. It is situated on the southern tip of the Balkans, and is located at the crossroads of Europe, Asia, and Africa. Greece shares land borders wi ...
by more than 20%. The increase in the number of insolvencies, however, does not indicate the total financial impact of insolvencies in each country because there is no indication of the size of each case. An increase in the number of bankruptcy cases does not necessarily entail an increase in bad debt write-off rates for the economy as a whole. Bankruptcy statistics are also a trailing indicator. There is a time delay between financial difficulties and bankruptcy. In most cases, several months or even years pass between the financial problems and the start of bankruptcy proceedings. Legal, tax, and cultural issues may further distort bankruptcy figures, especially when comparing on an international basis. Two examples: * In
Austria Austria, , bar, Östareich officially the Republic of Austria, is a country in the southern part of Central Europe, lying in the Eastern Alps. It is a federation of nine states, one of which is the capital, Vienna, the most populous ...
, more than half of all potential bankruptcy proceedings in 2004 were not opened, due to insufficient funding. * In
Spain , image_flag = Bandera de España.svg , image_coat = Escudo de España (mazonado).svg , national_motto = '' Plus ultra'' (Latin)(English: "Further Beyond") , national_anthem = (English: "Royal March") , ...
, it is not economically profitable to open insolvency/bankruptcy proceedings against certain types of businesses, and therefore the number of insolvencies is quite low. For comparison: In
France France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...
, more than 40,000 insolvency proceedings were opened in 2004, but under 600 were opened in Spain. At the same time the average bad debt write-off rate in France was 1.3% compared to Spain with 2.6%. The insolvency numbers for private individuals also do not show the whole picture. Only a fraction of heavily indebted households file for insolvency. Two of the main reasons for this are the stigma of declaring themselves insolvent and the potential business disadvantage. Following the soar in insolvencies in the last decade, a number of European countries, such as France, Germany, Spain and Italy, began to revamp their bankruptcy laws in 2013. They modelled these new laws after the image of Chapter 11 of the U.S. Bankruptcy Code. Currently, the majority of insolvency cases have ended in liquidation in Europe rather than the businesses surviving the crisis. These new law models are meant to change this; lawmakers are hoping to turn bankruptcy into a chance for restructuring rather than a death sentence for the companies.


Effective sovereign bankruptcy

Technically, states do not collapse directly due to a
sovereign default A sovereign default is the failure or refusal of the government of a sovereign state to pay back its debt in full when due. Cessation of due payments (or receivables) may either be accompanied by that government's formal declaration that it wi ...
event itself. However, the tumultuous events that follow may bring down the state, so in common language we do describe states as being bankrupted. Some examples of this are when a Korean state bankrupted Imperial China causing its destruction, or more specifically, when
Chang'an Chang'an (; ) is the traditional name of Xi'an. The site had been settled since Neolithic times, during which the Yangshao culture was established in Banpo, in the city's suburbs. Furthermore, in the northern vicinity of modern Xi'an, Qin ...
's (
Sui Dynasty The Sui dynasty (, ) was a short-lived imperial dynasty of China that lasted from 581 to 618. The Sui unified the Northern and Southern dynasties, thus ending the long period of division following the fall of the Western Jin dynasty, and la ...
) war with
Pyongyang Pyongyang (, , ) is the capital and largest city of North Korea, where it is known as the "Capital of the Revolution". Pyongyang is located on the Taedong River about upstream from its mouth on the Yellow Sea. According to the 2008 populat ...
(
Goguryeo Goguryeo (37 BC–668 AD) ( ) also called Goryeo (), was a Korean kingdom located in the northern and central parts of the Korean Peninsula and the southern and central parts of Northeast China. At its peak of power, Goguryeo controlled mos ...
) in 614 A.D. ended in the former's disintegration within 4 years, although the latter also seemingly entered into decline and fell some 56 years later. Another example is when the United States, with heavy financial backing from its allies (creditors), bankrupted the
Soviet Union The Soviet Union,. officially the Union of Soviet Socialist Republics. (USSR),. was a transcontinental country that spanned much of Eurasia from 1922 to 1991. A flagship communist state, it was nominally a federal union of fifteen nationa ...
which led to the latter's demise.


See also

*
Bankruptcy Act Bankruptcy Act (with its variations) is a stock short title used for legislation in Australia, Hong Kong, Malaysia, the Republic of Ireland, the United Kingdom and the United States relating to bankruptcy. The Bill for an Act with this short title ...
*
Bankruptcy alternatives Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. In most cases personal bankruptcy is initiated by the bankrupt individual. Bankruptcy is a legal process that discharges m ...
* Creditor's rights *
Debt consolidation Debt consolidation is a form of debt refinancing that entails taking out one loan to pay off many others. This commonly refers to a personal finance process of individuals addressing high consumer debt, but occasionally it can also refer to a cou ...
*
Debt relief Debt relief or debt cancellation is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations. From antiquity through the 19th century, it refers to domestic debts, in particu ...
*
Debt restructuring Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continu ...
*
Debtor in possession A debtor in possession or DIP in United States bankruptcy law is a person or corporation who has filed a bankruptcy petition, but remains in possession of property upon which a creditor has a lien or similar security interest. A debtor becomes ...
* Default *
DIP Financing Debtor-in-possession financing or DIP financing is a special form of financing provided for companies in financial distress, typically during restructuring under corporate bankruptcy law (such as Chapter 11 bankruptcy in the US or CCAA in Canada) ...
*
Distressed securities Distressed securities are securities over companies or government entities that are experiencing financial or operational distress, default, or are under bankruptcy. As far as debt securities, this is called distressed debt. Purchasing or holding s ...
*
Financial distress Financial distress is a term in corporate finance used to indicate a condition when promises to creditors of a company are broken or honored with difficulty. If financial distress cannot be relieved, it can lead to bankruptcy. Financial distress ...
* Individual voluntary arrangement *
Insolvency In accounting, insolvency is the state of being unable to pay the debts, by a person or company ( debtor), at maturity; those in a state of insolvency are said to be ''insolvent''. There are two forms: cash-flow insolvency and balance-shee ...
* Judicial estoppel *
Liquidation Liquidation is the process in accounting by which a company is brought to an end in Canada, United Kingdom, United States, Ireland, Australia, New Zealand, Italy, and many other countries. The assets and property of the company are redistrib ...
*
Protected trust deed A protected trust deed, overseen by the Accountant in Bankruptcy, is a voluntary but formal arrangement that is used by Scottish residents where a debtor (who can be a natural person or partnership) grants a ''trust deed'' in favour of the tru ...
* Sole Trader Insolvency (UK) * Stalking Horse Agreement * Tools of trade * Turnaround ADR


References


Further reading

* * * *


External links

*
U.S. Federal Bankruptcy Courts









National Association of Consumer Bankruptcy Attorneys

Bankruptcy Research Database (WebBRD)

Website of the Insolvency Service in the UK

Bankruptcy Statistics in Hong Kong


{{Authority control Personal financial problems Corporate liquidations Debt