EtymologyThe word ''bankruptcy'' is derived from Italian ''banca rotta'', literally meaning "broken bench" but more idiomatically "broken bank", since bankers traditionally dealt from wooden benches. A alleges that Italian bankers' benches were smashed if they defaulted on payment, but this is often dismissed as a legend.
HistoryIn , bankruptcy did not exist. If a man owed and he could not pay, he and his wife, children or servants were forced into " ", 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 enjoy. 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 , which by the of forbade enslavement for debt; as a consequence, most Athenian slaves were foreigners (Greek or otherwise). The of 1542 was the first statute under dealing with bankruptcy or . Bankruptcy is also documented in . According to , the of contained a provision that mandated the 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, 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 , , , , 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 restructuringThe principal focus of modern insolvency legislation and business practices no longer rests on the elimination of insolvent entities, but on the remodeling of the financial and organizational structure of debtors experiencing so as to permit the rehabilitation and continuation of the business. For private households, some argue that it is insufficient to merely dismiss debts after a certain period . 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
FraudBankruptcy is a . 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 . 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 of particular actions. Bankruptcy fraud is a in the United States. Bankruptcy fraud should be distinguished from '' strategic bankruptcy'', which is not a 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 would then be at the discretion of the judge or U.S. Trustee.
By countryIn some countries, such as the , bankruptcy is limited to individuals; other forms of insolvency proceedings (such as and ) are applied to companies. In the , ''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 s application for , 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.
ArgentinaIn 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.
AustraliaIn 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 or , which is governed by the federal '' ''. If a person commits an act of bankruptcy, then a creditor can apply to the Federal Circuit Court or the 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.
BrazilIn , 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.
CanadaBankruptcy, also referred to as insolvency in Canada, is governed by the and is applicable to businesses and individuals. For example, , the Canadian subsidiary of the , the second-largest in the United States filed for bankruptcy on January 15, 2015, and closed all of its stores by April 12. The office of the , 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 and are governed by the Bankruptcy and Insolvency Act 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 bankruptcy repayment plan, but few qualify for discharge of part or all of their student loan debt.