Bankruptcy law

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Bankruptcy is a process in which a court declares a person or business insolvent and orders the debtor’s assets to be sold to pay off creditors, at which point the debtor is discharged from any further obligation. When an organization is unable to honor its financial obligations or make payment to its creditors, it files for bankruptcy. A petition is filed in the court for the same where all the outstanding debts of the company are measured. All of the debtor's assets are measured and evaluated, and the assets may be used to repay a portion of outstanding debt. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.

Bankruptcy law
AuthorIshita Arora
ASSN36412
Published on09/02/2019
Co-Assn47267
EditorFaiyaz Khalid
Last Updates09/02/2019

Two major objectives of a bankruptcy are;

(1) Fair settlement of the legal claims of the creditors through an equitable distribution of debtor's assets, and

(2) To provide the debtor an opportunity for fresh start.

DEFINITION

"Bankruptcy" means the state of being bankrupt and

"bankrupt" means—

(a) a debtor who has been adjudged as bankrupt by a bankruptcy order ;

(b) each of the partners of a firm, where a bankruptcy order has been made against a firm; or

(c) any person adjudged as an undischarged insolvent.

In other words, bankruptcy is a federally authorized procedure by which a debtor—an individual, corporation, or municipality— is relieved of total liability for its debts by making court-approved arrangements for their partial repayment. The word bankruptcy is derived from Italian the word “banca rotta”, meaning "broken bench", which may stem from a widespread custom in the Republic of Genoa of breaking a moneychanger's bench or counter to signify their insolvency.

One can also say that bankruptcy is a federal system of statutes and courts which permits persons and businesses which are insolvent (debtors) or (in some cases) face potential insolvency, to place his/her/its financial affairs under the control of the bankruptcy court. The procedure is that when the debtor's debts exceed his/her/its assets or ability to pay, the debtor can file a petition with the bankruptcy court for voluntary bankruptcy or the debtor's unpaid creditors can file an "involuntary" petition to force the debtor into bankruptcy, although voluntary bankruptcy is far more common. Bankruptcy law provides for the development of a plan that allows a debtor, who is unable to pay his creditors, to resolve his debts through the division of his assets among his creditors. The philosophy behind the law is to allow the debtor to make a fresh start, not to be punished for inability to pay debts. Bankruptcy law allows certain debtors to be discharged of the financial obligations they have accumulated, after their assets are distributed, even if their debts have not been paid in full. Some bankruptcy proceedings allow a debtor to stay in business and use business income to pay his or her debts. Bankruptcy law offers an individual or business a chance to start fresh by forgiving debts that simply cannot be paid, while offering creditors a chance to obtain some measure of repayment based on the individual's or business's assets available for liquidation.

INTRODUCTION

One must know that in the case of bankruptcy, the debtor is the company (or individual) who has gone bankrupt and owes money to various other firms and individuals. Those firms and individuals are the creditors.

The mere idea of filing for bankruptcy is enough to fill the hearts of many debtors with terror. After all, to most, bankruptcy seems less a tool of managing one’s finances than a public admission of failure. However, despite common belief, certain types of bankruptcy can be the method through which individuals and businesses actually protect their financial standing.

Bankruptcy is one of the most complex areas of law, incorporating elements of contract law, corporate law, tax law and real estate law. Bankruptcy happens in two scenarios – the assets are less than the liabilities and are unable to pay their debts when they are due.

Bankruptcy law governs the rights of creditors and insolvent debtors who cannot pay their debts. In broadest terms, bankruptcy deals with the seizure of the debtor’s assets and their distribution to the debtor’s various creditors. The term derives from the Renaissance custom of Italian traders, who did their trading from benches in town marketplaces. Creditors literally “broke the bench” of a merchant who failed to pay his debts. The term “banco rotta” (broken bench) thus came to apply to business failures.

In the Victorian era, many people in both England and the United States viewed someone who became bankrupt as a wicked person. In part, this attitude was prompted by the law itself, which to a greater degree in England and to a lesser degree in the United States treated the insolvent debtor as a sort of felon. Until the second half of the nineteenth century, British insolvents could be imprisoned; jail for insolvent debtors was abolished earlier in the United States. And the entire administration of bankruptcy law favored the creditor, who could with a mere filing throw the financial affairs of the alleged insolvent into complete disarray.

Today a different attitude prevails. Bankruptcy is understood as an aspect of financing, a system that permits creditors to receive an equitable distribution of the bankrupt person’s assets and promises new hope to debtors facing impossible financial burdens. Without such a law, we may reasonably suppose that the level of economic activity would be far less than it is, for few would be willing to risk being personally burdened forever by crushing debt. Bankruptcy gives the honest debtor a fresh start and resolves disputes among creditors. Bankruptcy Basics:

Although bankruptcy is complicated and the exact steps can vary from state to state, each chapter of bankruptcy uses the same terminology and follows the same basic process.

Two main parties are involved in bankruptcy filings -- the debtor and the creditor. The debtor is the party who has debt, or owes money, to the creditor. A debtor can be a company or an individual. The creditor is an organization or company that claims the debtor owes property, service, or money. Most bankruptcy cases involve several creditors.

Debtors can have two different types of debt -- secured and unsecured. With secured debts, creditors have the legal right to something of yours if you fail to make the proper payments. Your mortgage, for example, is a secured debt. By loaning you the money to pay for your house, the bank gets a lien on it. If you stop making mortgage payments, the bank can foreclose and take possession of your house. Debt adjustment - The arrangements made for the repayment or satisfaction of debts in an amount or manner that differs from the original arrangements Dischargeable debts - Debts that can be erased or eliminated by going through bankruptcy.

Non - dischargeable debts - Debts that cannot be erased or eliminated by filing for bankruptcy.

Lien - Any official claim or charge against property or funds for payment of a debt or an amount owed for services rendered. It is a right to keep possession of property belonging to another person until a debt owed by that person is discharged.

Secured debt - A debt on which a creditor has a lien. Secured debts are those in which the borrower, along with a promise to repay, puts up some asset as surety for the loan.

Unsecured debt - A debt that is not tied to any item of property. Unsecured debt is a debt that is not backed by an underlying asset.

SOURCES

The first known bankruptcy statute is found in the bible in Deuteronomy 15.

"At the end of every seven years thou salt make a release. And this is the manner of the release: every creditor who lends ought unto his neighbor shall release it; he shall not exact it of his neighbor, or of his brother, because it is called the Lord's release." Deut. 15:1,2.

Here we find God's intention to ensure that everyone would, by operation of law, have a fresh financial start every 7 years and to ensure that from the very first indebtedness would not be a crime in Jewish culture. These two profound rules of law were intended to create a society that was fair, equitable and did not permit the mistreatment of the poor.

If we look toward these roots and legal structure of the Jewish society set forth in the Old Testament, we see a picture exactly the opposite from that of the remainder of the world. We see a society where loans were kept to a minimum by force of law, and gratuity and charity, by force of law, were kept to a maximum. To accomplish this end, God did not outlaw borrowing and lending, but instead He provided that loans would eventually become gifts, and thereby limited loans only to those in need. He permitted the loan to take place, and the consequent legal obligation to repay to arise, but He limited the legal obligation to repay to a maximum of only seven years. Every seventh year all lenders were to release their debtors from all their debts. Every seventh year, the debtors were discharged from all their loans and were no longer legally obligated to repay them. The debtor was free of all loans, and by force of law the creditor had made a gift.

SCOPE

One thing to remember is that the bankruptcy only applies to the parties that file for protection. If you and your spouse are the sole account owners and file together, both of you will have the protection if the petition is successful. If you have an account with someone else and he or she isn't filing for bankruptcy, the debt can be discharged for you but not for the other person.

Bankruptcy Law applies primarily to entrepreneurs, the term denoting natural persons, legal persons, and entities not being a legal person but operating a business (production; construction; trade; services; searching for, reconnaissance in terms of, and extraction of minerals from deposits; as well as professional activities carried out in an organized and continuous manner). The Bankruptcy Law also applies to commercial companies that do not operate a business, partners in professional partnerships, and partners in partnerships that bear unlimited liability with all their assets (i.e. partners in registered partnerships and general partners in limited partnerships and limited joint-stock partnerships). Entities that have not been expressly specified by the legislator as subject to bankruptcy cannot be declared bankrupt. These include the State Treasury, local authorities, public independent health care facilities, legal persons and institutions established under a statute, higher education institutions, investment funds, and farmers. As for restructuring proceedings, the entities that may utilize this procedure are nearly the same as in the case of bankruptcy proceedings. The difference concerns the entities that the Restructuring Law does not apply to. Restructuring proceedings cannot be opened with respect to the State Treasury, local authorities, national and mortgage banks, insurance and reinsurance companies, and investment funds.

NATURE

Finance theorists have long recognized that bankruptcy is a key component in any general theory of the capital structure of business entities. Legal theorists have been similarly sensitive to the substantial allocational and distributional effects of the bankruptcy law. Bankruptcy scholars have been content to recite, without critical analysis, the two normative objectives of bankruptcy: rehabilitation of overburdened debtors and equality of treatment for creditors and other claimants.

A primary objective of any bankruptcy process is to regulate the inherent conflicts among different groups having separate claims against a debtor's assets and income stream. Although many classes of claimants may exist, the most common corporate structure usually consists of secured creditors, unsecured creditors, and equity (common stockholders). The relations among classes are governed both by contracts and by legal rules prescribing attributes of the various classes.

Bankruptcy law implements a general objective of maximizing group welfare, one can usefully imagine “bankruptcy as a system designed to mirror the agreement one would expect the creditors to form among themselves were they to negotiate such an agreement from an ex ante position.” The purpose of bankruptcy proceedings is not merely to protect creditors, but also to free the individual from a load of debt that has become insupportable and set him on his feet again as a useful member of society. There are abuses, to be sure, of this modern practice. Cases are not unknown, both of individuals and of business enterprises, that have gone through bankruptcy proceedings for the prime purpose of clearing themselves of the legal obligation to pay their debts and afterwards have refused to recognize any moral obligation. But these abuses are, after all, comparatively rare. Individuals who have been able to rebuild their fortunes, after having gone through bankruptcy, have often made it a point of honor to repay in full all the debts from which they had legally been freed.

TYPES

There are two different types of bankruptcy outlined by the United States Bankruptcy Code. Each type of bankruptcy is identified by the chapter of the Code that describes the code. There are two types of bankruptcy for individuals—the discharge of debts and the payment plan.

Chapter 7 Bankruptcy

Chapter 7 of the Bankruptcy Code is for the discharge of debts, which is the traditional bankruptcy. Under Chapter 7, you either pay for or give up your property for secured debts. You surrender any nonexempt property in order to pay off as much of your other debt as possible. You keep all of your other exempt property and are forever released from any obligation to repay the remaining dischargeable debt. One important requirement for a Chapter 7 bankruptcy is that you do not have sufficient income to allow you to pay at least a portion of your debts. Making this determination is largely a mathematical calculation, and there is a form for making the calculation. If you have enough income, you will need to file under Chapter 13 instead of under Chapter 7.

Chapter 13 Bankruptcy

In a Chapter 13 bankruptcy, you are not seeking to get rid of all of your debt entirely, but only to do one or a combination of the following:

1. Restructure your payments so they are more manageable, considering your income

2. Get rid of part of your debt so that you can manage payments

This can be done by spreading your payments over a longer period of time or by paying only a part of the loan. Either way, your monthly or weekly payment will be reduced. This type of payment plan can last up to five years. This means your finances will be under the watchful eye of the trustee during this time.

The two main things the trustee and the judge will consider in deciding whether to accept your plan are:

o Whether the creditors are being treated fairly

o Whether each creditor will receive at least as much as if you had gone with the traditional Chapter 7 bankruptcy

In a Chapter 13 case, the creditors' meeting is usually concerned with trying to reach a plan that will be acceptable to the creditors. You may spend some time negotiating with creditors as they try to get you to change your plan so they get more money or get it faster.

The creditors don’t need to agree with your plan, but if they do, it will be more easily accepted by the trustee and the judge. Even if the creditors object to your plan, it can still be approved as long as it is fair (in the judge's opinion, which usually relates to all creditors of the same type being treated equally) and as long as each creditor gets at least as much as if you had filed under Chapter 7.

BRANCHES

As you evaluate your options, you will see that the two main branches of bankruptcy are Chapter 7 and Chapter 13.

The amount of money one earn effects your ability to choose which branch of bankruptcy to use, and that is why a bankruptcy lawyer will ask one to bring in proof of income. The lawyer needs to know exactly how much money one makes to determine if one qualify for Chapter 7. One will only qualify for this branch if one’s income is less than the median income in your state.

To determine the answer to this question, one’s lawyer will add up all the income for the last six months and will complete a means test. The lawyer must include any income earned during this time by the person, even extraordinary income. For example, if you received an inheritance of money during the last six months, your lawyer must legally count this as income.

If one’s income exceeds the median income, one cannot file Chapter 7. Instead, one must use Chapter 13. If one qualifies for Chapter 7 based on one’s income level, one should not automatically assume that this is the branch you should file. Sometimes filing for Chapter 13 is a better choice, even when a person qualifies for Chapter 7.

The types of debts you have also play a huge role in selecting the branch of bankruptcy that is best for you. Chapter 7 offers forgiveness of certain types of debts, whereas Chapter 13 requires repayment of most debts. This key difference in these branches often causes people to assume that Chapter 7 is superior; however, this is not always true.

If you owe money on personal loans, medical bills, and credit cards then filing for Chapter 7 is often highly beneficial as it will wipe out these types of debts completely.

On the other hand, if you owe money for child support, IRS taxes, or student loans, Chapter 7 will not offer any form of relief. Additionally, if you fall behind on car payments or your mortgage payments, Chapter 7 offers no help. In these situations, a lawyer would recommend Chapter 13 instead of Chapter 7.

HISTORY

To the best of our knowledge, in their fully-fledged, classical version, bankruptcy laws are a Western European, medieval invention. This institution emerged during the 13th and 14th centuries in the Northern Italian trading cities and was typically managed by semi-independent traders’ courts. From there on it extended to the rest of the continent, or at least to its main trading hub. Later, from the 17th century onwards, this legacy was confirmed, absorbed and rewritten by the legal and judicial institutions of emerging modern states. In particular, the French commercial codes of 1673 and 1807 carried forward the core Italian patterns, first in Continental Europe, then Latin America, African colonies, Japan, Turkey, or Republican China.

Ancient world

In Ancient Greece, 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", until the creditor recouped losses via their physical labor. Many city-states in ancient Greece limited debt slavery to a period of five years and 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. In Judaism and the Torah, or Old Testament, every seventh year is decreed by Mosaic Law as a Sabbatical year wherein the release of all debts that are owed by members of the Jewish community is mandated, but not of "gentiles". The seventh Sabbatical year, or forty-ninth year, is then followed by another Sabbatical year known as the Year of Jubilee wherein the release of all debts is mandated, for fellow community members and foreigners alike, and the release of all debt-slaves is also mandated. The Year of Jubilee is announced in advance on the Day of Atonement, or the tenth day of the seventh Biblical month, in the forty-ninth year by the blowing of trumpets throughout the land of Israel.

In Islamic teaching, according to the Quran, an insolvent person was deemed to be allowed time to be able to pay out his debt. This is recorded in the Quran's second chapter (Sura Al-Baqara), Verse 281, which notes: "And if someone is in hardship, then let there be postponement until a time of ease. But if you give from your right as charity, then it is better for you, if you only knew."

Medieval period

Medieval canon law discussed extensively provisions to mitigate the harshness of debtors' punishments. Most commentators allowed for a debtor to be discharged and make a fresh start, after ceding to his creditors all his goods (or possibly all his goods except some bare necessities).These provisions later influenced English law.

Bankruptcy is also documented in East Asia. According to al-Maqrizi, the Yassa of Genghis Khan contained a provision that mandated the death penalty for anyone who became bankrupt three times.

Philip II of Spain had to declare four state bankruptcies in 1557, 1560, 1575 and 1596. Spain became the first sovereign nation in history to declare bankruptcy.

Bankruptcy works only as part of the infrastructure of local credit markets, where variety across countries and centuries is immense, as historians know. In some cases, therefore, an imported statute may respond quite directly to the needs of local trading communities, as apparently illustrated by the Indo-British law in early 20th century Zanzibar. Or it may have been progressively adjusted and even improved, following the Belgian and Piemontese experiences vis-à-vis the French 1807 Commercial Code. Alternatively, transplanting may fail as in the relatively shallow networks of colonial trading outposts, where a fractured sovereignty apparently opposed limits to political and economic re-ordering. In other words, a given bankruptcy statute may or may not affect behaviors, and it may sanction failure more or less strongly. But in turn, because it may bear so powerfully on property rights and market discipline, hence on access to economic exchange, it’s very presence or absence is doomed to tell a lot on how contracts are structured, and how much of them are exchanged in an economy. This is ultimately why bankruptcy laws are part of a global history.

The Italian and French early bankruptcy laws were already framed as altogether a repressive institution and as a civil dispute resolution mechanism. That is, they would not necessarily cause la mort civile: they were also designed to regulate the inevitable flow of commercial failures that surface in any market economy. For centuries, judges and lawmakers were indeed haunted by the fate of the legendary “honest but unlucky debtor”: that is, the merchant who had committed neither a fault nor a sin, and whose civic status and access to market should be protected, or conditionally reinstated. Beyond fairness, economic efficiency was clearly the issue: in an expanding open market economy, an exclusively penal, exclusionary approach to debt defaults would inevitably impair risk-taking and entrepreneurship. Eventually, the standard answer was debt relief, either as a collective decision of the creditors or as a judicial one. Provided the bankrupt had dutifully ceded all his remaining assets, this would open him the prospect of a fresh start. As Blackstone famously commented: “Thus the bankrupt becomes a clear man again; and […] may become a useful member of the commonwealth.” Over the course of the 19th century, as the European and American societies fully entered market exchanges, problems of over-indebtedness and insolvency extended to retail traders, then to farmers, later households. Both the law and the judiciary then had to address the needs of this new, much larger clientele, with its specific needs and resources. This would raise considerable challenges to institutions that had been established, sometimes centuries ago, to serve only a limited number of cases, arising from a rather homogenous population. Take the case of France, where the total number of bankruptcies cases grew by about 240% between the 1840’s and World War I: far from reflecting a mostly “Schumpeterian story” where masses of entrepreneurs would face success or fiasco, the largest contribution in this increase came from the lower strata of small, local businesses. Part of the answer to this increased demand came from rationalization and standardization in the courts, but that was not enough: in a growing proportion of cases, the limited value of residual assets did even not cover the costs of running the procedure. A mass of insolvent retail-traders and craftsmen then clogged courts, until judges were allowed in 1838 to close or suspend cases ex officio; creditors’ agreement was even not requested. In other words, the old, honorable Tribunaux de Commerce simply excluded small debtors and their creditors and therefore refused to enforce market sanction at the lower end of the economic population. By the 1850s, 20% of cases did not proceed till the end; during the last ten years before 1914, this ratio averaged 50% of the total. In other words, these agents were de facto left to the “informal sector”, an experience that is indeed very comparable to that observed today in many developing countries: the law and the institutions of open market economies may be in place, although they only reach a part of the populations, often a minority one.

In different countries

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.

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 or administration, which is governed by the federal Corporations Act 2001. 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. A person can also seek to have themselves declared bankrupt by lodging a debtor's petition with the "Official Receiver", which is the Australian Financial Security Authority (AFSA).To declare bankruptcy or for a creditor to lodge a petition, the debt must be at least $5,000.

Brazil

In Brazil, 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").

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. 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 and is applicable to businesses and individuals. The office of the Superintendent of Bankruptcy, 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.

China

The Enterprise Bankruptcy Law of the People's Republic of China (trial Implementation) was first passed in 1986. On 1 June 2007, the new Enterprise Bankruptcy Law of the PRC came into force. It contains 136 articles, almost 100 more than the 1986 law it replaced, and consequently it is thought to be more complete legally. The Enterprise Bankruptcy Law of the PRC was adopted in August 27, 2006, and became effective since June 1, 2007.

Ireland

Bankruptcy in Ireland applies only to natural persons. Other insolvency processes including liquidation and examinership 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 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 Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy. The bankruptcy code is a one stop solution for resolving insolvencies which at present is a long process and does not offer an economically viable arrangement. The code will be able to protect the interests of small investors and make the process of doing business a less cumbersome process.

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 bankruptcy applies to individuals and 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. The third proceeding is the schuldsanering. This proceeding is designed for individuals only and is the result of a court ruling.

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.

South Africa

Insolvency in South African law refers to a status of diminished legal capacity (capitis diminutio) imposed by the courts on persons who are unable to pay their debts, or (which amounts to the same thing) whose liabilities exceed their assets. The insolvent's diminished legal capacity entails deprivation of certain of his important legal capacities and rights, in the interests of protecting other persons, primarily the general body of existing creditors, but also prospective creditors. Insolvency is also of benefit to the insolvent, in that it grants him relief in certain respects.

Switzerland

Under Swiss law, bankruptcy can be a consequence of insolvency. 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. 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 cannot access its assets.

United Kingdom

Bankruptcy in the United Kingdom (in a strict legal sense) relates only to individuals (including sole proprietors) and partnerships. Companies and other corporations enter into differently named legal insolvency procedures: liquidation and administration (administration order and administrative receivership). However, the term 'bankruptcy' is often used when referring to companies in the media and in general conversation.

A trustee in bankruptcy must be either an Official Receiver (a civil servant) or a licensed insolvency practitioner. Current law in England and Wales derives in large part from the Insolvency Act 1986. Following the introduction of the Enterprise Act 2002, 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.

United States

In 2013, Detroit filed the largest municipal bankruptcy case in U.S. history.

Bankruptcy in the United States is a matter placed under federal jurisdiction by the United States Constitution (in Article 1, Section 8, Clause 4), which empowers Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States". Congress has enacted statutes governing bankruptcy, primarily in the form of the Bankruptcy Code, located at Title 11 of the United States Code. 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.

Europe

In 2004, the number of insolvencies reached record highs in many European countries. In France, company insolvencies rose by more than 4%, in Austria by more than 10%, and in Greece 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.


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