Personal bankruptcy

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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 corporate bankruptcy.

Contents

By country

The DICE report 2006 of Munich's ifo Economic Research compared international personal bankruptcy in selected OECD-countries. [1]

United States

In the United States, the same chapters of the Bankruptcy Code are applied in both personal and corporate bankruptcies. Most individuals who enter bankruptcy do so under Chapter 13 (a "reorganization" plan) or Chapter 7 (a "liquidation" of debtor's assets). More rarely, personal bankruptcy proceedings are carried out under Chapter 11. The ultimate goal of personal bankruptcy, from the viewpoint of the debtor, is receiving a discharge. [2]

In 2008, more than 96% of all bankruptcy filings were non-commercial and about two-thirds of these were chapter 7 cases. [3] Although the individual causes of bankruptcy are complex and multifaceted, most personal bankruptcies involve significant medical bills. [4] Individual bankruptcies are usually filed under chapter 7 or chapter 13. According to the American Bankruptcy Institute, in 2017 38.8% of Chapter 13 bankruptcy cases ended in dismissal. [5] In the first quarter of 2020, there were 175,146 individual bankruptcies in the United States. [6] About 66.5% of these were directly related to medical problems.

Canada

The concept behind bankruptcy in Canada is that an individual assigns (surrender) everything they own to a trustee in bankruptcy in exchange for the elimination of their unsecured debts.

The rules for filing personal bankruptcy in each province and territory differ slightly. In some areas of Canada individuals may be permitted to keep (exempt) certain property. Common items for exemption include clothing, furniture, appliances, motor vehicles, medical and dental aids, a home, family heirlooms, and some insurance. In basic terms, any property the debtor might require to survive can be exempt. Personal Bankruptcy will eliminate most, if not all, of an individual’s debt, but it also impacts their future ability to obtain credit.

The cost of personal bankruptcy in Canada depends on the individual’s monthly family income, the size of the family, and their assets (such as RRSPs). An alternative to personal bankruptcy (in Canada) is a Consumer Proposal. Another option in Canada is a debt consolidation. No matter what option they choose, they can often turn to a trustee in bankruptcy for a free consultation.

Israel

Personal bankruptcy in Israel is governed by the Insolvency and Rehabilitation Law, 2018. Insolvency proceedings below NIS150,000 will be administered entirely by the Enforcement and Collection Authority. Insolvency proceedings above NIS150,000 will be conducted before the official receiver (the Insolvency Commissioner) and, if relevant, before the court with respect to further, more specific matters. Simultaneously, with the issue of the order for the commencement of insolvency proceedings, the Insolvency Commissioner shall appoint a trustee for the debtor and an audit will be carried out, in which the debtor’s economic capability and his conduct will be examined (lasting approximately 12 months).At the end of this audit a payment plan is established, at the end of which the debtor will receive a discharge. The default scenario is a payment period of three years, however, the court reserves the right to increase or decrease the period depending upon the circumstances of the case. If the debtor has no proven financial ability to pay the creditors, he may be granted an immediate discharge. [7] Since 1996, Israeli personal bankruptcy law has shifted to a relatively debtor-friendly regime, not unlike the American model. [8]

Related Research Articles

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.

Chapter 11 of the United States Bankruptcy Code permits reorganization under the bankruptcy laws of the United States. Such reorganization, known as Chapter 11 bankruptcy, is available to every business, whether organized as a corporation, partnership or sole proprietorship, and to individuals, although it is most prominently used by corporate entities. In contrast, Chapter 7 governs the process of a liquidation bankruptcy, though liquidation may also occur under Chapter 11; while Chapter 13 provides a reorganization process for the majority of private individuals.

Chapter 7 of Title 11 U.S. Code is the bankruptcy code that governs the process of liquidation under the bankruptcy laws of the U.S. In contrast to bankruptcy under Chapter 11 and Chapter 13, which govern the process of reorganization of a debtor, Chapter 7 bankruptcy is the most common form of bankruptcy in the U.S.

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 continue its operations.

<span class="mw-page-title-main">Bankruptcy in the United States</span> Overview of bankruptcy in the United States of America

In the United States, bankruptcy is largely governed by federal law, commonly referred to as the "Bankruptcy Code" ("Code"). The United States Constitution authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States". Congress has exercised this authority several times since 1801, including through adoption of the Bankruptcy Reform Act of 1978, as amended, codified in Title 11 of the United States Code and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

<span class="mw-page-title-main">Insolvency</span> State of being unable to pay ones debts

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-sheet insolvency.

<span class="mw-page-title-main">Bankruptcy Abuse Prevention and Consumer Protection Act</span> 2005 American bill

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is a legislative act that made several significant changes to the United States Bankruptcy Code.

A trustee in bankruptcy is an entity, often an individual, in charge of administering a bankruptcy estate.

A bankruptcy discharge is a court order that releases an individual or business from specific debts and obligations they owe to creditors. In other words, it's a legal process that eliminates the debtor's liability to pay certain types of debts they owe before filing the bankruptcy case.

Consumer bankruptcy in Canada is governed by the Bankruptcy and Insolvency Act ("BIA"). The legislation is complemented by regulations, as well as directives from the Office of the Superintendent of Bankruptcy that provide guidelines to trustees in bankruptcy on various aspects of the BIA.

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 insolvency of individuals and partnerships. Other procedures, for example administration and liquidation, apply to insolvent companies. However, the term 'bankruptcy' is often used when referring to insolvent companies in the general media.

<i>Bankruptcy and Insolvency Act</i>

The Bankruptcy and Insolvency Act is one of the statutes that regulates the law on bankruptcy and insolvency in Canada. It governs bankruptcies, consumer and commercial proposals, and receiverships in Canada.

<span class="mw-page-title-main">Enterprise Act 2002</span> United Kingdom legislation

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 prison sentence of 5 years and states that level of competition in a market should be the basis for investigation.

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 most debts, but has the disadvantage of making it more difficult for an individual to borrow in the future. To avoid the negative impacts of personal bankruptcy, individuals in debt have a number of bankruptcy alternatives.

The insolvency law of Switzerland is the law governing insolvency, foreclosure, bankruptcy and debt restructuring proceedings in Switzerland. It is principally codified in the Federal Statute on Debt Enforcement and Bankruptcy of 11 April 1889 as well as in ancillary federal and cantonal laws.

Bankruptcy in Irish Law is a legal process, supervised by the High Court whereby the assets of a personal debtor are realised and distributed amongst his or her creditors in cases where the debtor is unable or unwilling to pay his debts.

<span class="mw-page-title-main">Commercial insolvency in Canada</span> Business insolvency in Canada

Commercial insolvency in Canada has options and procedures that are distinct from those available in consumer insolvency proceedings. It is governed by the following statutes:

<span class="mw-page-title-main">British Virgin Islands bankruptcy law</span>

British Virgin Islands bankruptcy law is principally codified in the Insolvency Act, 2003, and to a lesser degree in the Insolvency Rules, 2005. Most of the emphasis of bankruptcy law in the British Virgin Islands relates to corporate insolvency rather than personal bankruptcy. As an offshore financial centre, the British Virgin Islands has many times more resident companies than citizens, and accordingly the courts spend more time dealing with corporate insolvency and reorganisation.

<span class="mw-page-title-main">Cayman Islands bankruptcy law</span>

Cayman Islands bankruptcy law is principally codified in five statutes and statutory instruments:

Anguillan bankruptcy law regulates the position of individuals and companies who are unable to meet their financial obligations.

References

  1. ↑ "Detailinformationen zur Publikation" (in German). Archived from the original on 30 December 2013. Retrieved 19 April 2014.
  2. ↑ "Discharge in Bankruptcy - Bankruptcy Basics". United States Courts. Administrative Office of the U.S. Courts. Retrieved 15 May 2017.
  3. ↑ "US Courts 2008 Bankruptcy Statistics (Excel)". uscourts.gov. Archived from the original on 2009-08-16. Retrieved 2023-03-14.{{cite web}}: CS1 maint: bot: original URL status unknown (link)
  4. ↑ "Medical bills trigger half of all bankruptcies - Business - Personal finance - NBC News". nbcnews.com. 2 February 2005. Retrieved 2023-03-14.
  5. ↑ Flynn, Ed (August 2017). "Bankruptcy by the Numbers" (PDF). ABI Journal: 38. Retrieved 14 March 2023.
  6. ↑ "Bankruptcy and the COVID-19 Crisis" (PDF). hbs.edu. Retrieved 2023-03-14.
  7. ↑ Zinger, Seffy. "Restructuring Israel's insolvency law". Restructuring Israel’s insolvency law. Retrieved 1 May 2020.
  8. ↑ EFRAT, RAFAEL. "THE TRANSFORMATION OF THE ISRAELI BANKRUPTCY SYSTEM AS A REFLECTION OF SOCIETAL CHANGES" (PDF). Florida State University. Archived from the original (PDF) on 15 September 2006. Retrieved 19 April 2014.
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