Main article: History of bankruptcy law

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 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 Athens, which by the laws of Solon forbade enslavement for debt; as a consequence, most Athenian slaves were foreigners (Greek or otherwise).

In the 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 community (but not "foreigners") is mandated.^[6] 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.^[7] The Year of Jubilee is announced in advance on the Day of Atonement, or the tenth day of the seventhBiblical month, in the forty-ninth year by the blowing of trumpets throughout the land of Israel.

In Islamic teaching, according to the Qur'an, an insolvent person was deemed to be allowed time to be able to pay out his debt. This is recorded in the Qur'an's second chapter (Sura Al-Baqara), Verse 280, 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."

The Statute of Bankrupts of 1542 was the first statute under English law dealing with bankruptcy or insolvency.^[8]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.

A failure of a nation to meet bond repayments has been seen on many occasions. Philip II of Spain had to declare fourstate 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 numerous defaults of France, Portugal, Prussia, Spain, and the early Italian city-states. At the edge of Europe, Egypt, Russia, and Turkey have histories of chronic default as well."^[9]

The principal focus of modern insolvency legislation and business debt restructuring 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 so as to permit the rehabilitation and continuation of their business.

For private households, it is argued to be 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 need to be equally provided during this period of rehabilitation (Reifner 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). Other Member States do not provide the option of a debt discharge. Spain, for example, passed a bankruptcy law (ley concursal) 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.^[10]

Fraud[edit]

Bankruptcy fraud is a white-collar crime. 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. 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 of particular actions.^[11][12] Bankruptcy fraud is afederal crime in the United States.

Bankruptcy fraud should be distinguished from strategic bankruptcy, which is not a criminal act, but may 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 and/or perjurywould then be at the discretion of the judge and/or U.S. Trustee.

By country[edit]

Argentina[edit]

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[edit]

The Bankruptcy Act 1966 (Commonwealth) is the legislation that governs bankruptcy in Australia. Only individuals can become bankrupt; insolvent companies go into liquidation or administration. There are three "parts" of the act under which the vast majority of "acts of bankruptcy" fall. Part IV (Full Bankruptcy), Part IX Debt Agreements and Part X Personal Insolvency Agreements. Agreements refer specifically to arrangements between creditors and debtors, whereas Part IV relates to full bankruptcy and is generally synonymous with "bankruptcy".

A person or debtor can declare himself or herself bankrupt by lodging a debtor's petition with the Official Receiver, which is the Australian Financial Security Authority (AFSA). A person can also be made bankrupt after a creditor's petition results in the making of a sequestration order in the Federal Magistrates Court. To declare bankruptcy or for a creditors petition to be lodged, a minimum debt of $5,000 is required.

All bankrupts are required to lodge a Statement of Affairs document with AFSA, which includes important information about their assets and liabilities. A bankruptcy cannot be annulled until this document has been lodged.

Ordinarily, a Part IV bankruptcy lasts three years from the filing of the Statement of Affairs with AFSA. In the case of a debtor's petition, the Statement of Affairs is filed with the petition and the three-year period commences immediately. However, in the case of a creditor's petition, the Statement of Affairs will rarely be filed on the same day the court order is made. If the bankrupt fails to lodge the document within a certain period of time, he or she can be prosecuted and fined.

A Bankruptcy Trustee (in most cases this is the Official Receiver) 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 his or her 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 under the Act. For example, a bankrupt must obtain the permission of his or her 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 his or her 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 five years.

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 will be sold. If a house or car is above a certain value, the bankrupt can buy the interest back from the estate in order to keep the asset. If the bankrupt does not do this, the interest vests in the estate and the trustee is able to take possession of the asset and sell it.

The bankrupt will have to pay income contributions if his or her income is above a certain threshold. The threshold is indexed biannually in March and September, and varies according to the number of dependants the bankrupt has. The income contributions liability is calculated by halving the amount of income that exceeds the threshold. If the bankrupt fails to pay the contributions due, the trustee can issue a notice to garnishee the bankrupt's wages. If that is not possible, the Trustee may lodge an Objection to Discharge, effectively extending the bankruptcy for a further five years.

Bankruptcies can be annulled 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 will be shown as "discharged bankrupt" for some years. The number of years varies depending on the company issuing the report, but the report will eventually cease to record that information.

Certain limited information on Bankruptcy Law in Australia can be found at the AFSA web site.^[13]

Brazil[edit]

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"). 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 has to be approved by courts.^[14]

Canada[edit]

Main article: Insolvency law of 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.

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.^[15] 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.^[16] 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 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

Main article: Consumer bankruptcy in Canada

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 will accept the deal, because if they do not, the next alternative may be personal bankruptcy, where the creditors will 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. 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 in bankruptcy, although the Superintendent of Bankruptcy 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.^[17]

China[edit]

Main article: Bankruptcy in China

The People's Republic of China legalized bankruptcy in 1986, and a revised law that was more expansive and complete was enacted in 2007.

Ireland[edit]

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^[18] has started this process and the government has committed to further reform.

India[edit]

India does not have a clear law on corporate bankruptcy even though individual bankruptcy laws have been in existence since 1874. The current 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 is 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 is generally undertaken using receivership by a public entity.

The Netherlands[edit]

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 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. Its 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[edit]

Main article: Insolvency law of 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 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: • Observation Control (nablyudeniye); • The economic recovery (finansovoe ozdorovleniye); • External control (vneshneye upravleniye); • Liquidation (konkursnoye proizvodstvo) and • Comprehensive Agreement (mirovoye soglasheniye).

The main face of the bankruptcy process is the insolvency officer (trustee in bankruptcy). At various stages of bankruptcy, he has to be determined: the temporary officer, external control, the receiver or administrative officer. 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.

Switzerland[edit]

Main article: Insolvency law of 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.

In Sweden, bankruptcy (Swedish: konkurs) is a formal process that may involve a company or individual. It is not the same as insolvency, 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 will take over the company or the assets of the person, trying 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.^[19] 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 are derived from being subjected to a ban on business operations (issued by court, commonly for tax fraud and/or fraudulent business practices) or owed to a crime victim as compensation for damages, are exempted from this and like before this process was introduced in 2006 will remain lifelong.^[20] Debts that have not been claimed during a 3-10 year period will be 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 the claims are not cancelled. The most common reasons for personal insolvency in Sweden are illness, unemployment, divorce or company bankruptcy, not the reckless spending claimed by politicians and debt collection agencies when they describe the problem with deep personal debts.^[21]

United Kingdom[edit]

Main articles: UK insolvency law, Liquidation and Administration (insolvency)

Bankruptcy in the United Kingdom (in a strict legal sense) relates only to individuals (including sole proprietors) and partnerships. Companies and other corporationsenter 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. Bankruptcy in Scotland is referred to as sequestration. To apply for bankruptcy in Scotland, an individual must have more than £1500 of debt.

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 will now normally last no longer than 12 months and may be less, if the Official Receiver files in court a certificate that his investigations are complete. It was expected that the UK Government's liberalisation of the UK bankruptcy regime would increase the number of bankruptcy cases; initially cases increased, as the Insolvency Service statistics appear to bear out but in recent years, (2010 onwards cases have decreased considerably, the latest estimates at 2014/15 being significantly less than 30,000 cases.