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 .
92-500: Bankrupt is not the only legal status that an insolvent person may have, and the term bankruptcy is therefore not a synonym for insolvency . The word bankruptcy is derived from Italian banca rotta , literally meaning ' broken bank ' . The term is often described as having originated in Renaissance Italy , where there allegedly existed the tradition of smashing a banker's bench if he defaulted on payment. However,
184-561: 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
276-500: A balance-sheet insolvency) become personally liable for the business's debts. Trading insolvently is often regarded as normal business practice in South Africa, as long as the business is able to fulfill its debt obligations when they fall due. Under Swiss law, insolvency or foreclosure may lead to the seizure and auctioning off of assets (generally in the case of private individuals) or to bankruptcy proceedings (generally in
368-500: 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
460-402: A civil action or even an offence to continue to pay some creditors in preference to other creditors once a state of insolvency is reached. Debt restructurings are typically handled by professional insolvency and restructuring practitioners, and are usually less expensive and a preferable alternative to bankruptcy. Debt restructuring is a process that allows a private or public company - or
552-490: A company deeper into bankruptcy, under the legal theory of "deepening insolvency". In determining whether a gift or a payment to a creditor is an unlawful preference, the date of the insolvency, rather than the date of the legally declared bankruptcy, will usually be the primary consideration. Chapter 13, Title 11, United States Code Title 11 of the United States Code sets forth the statutes governing
644-424: A company, or an individual debtor whose debts exceed the limits for a Chapter 13 filing). As a Chapter 11 bankruptcy is considerably more complex and expensive than a Chapter 13 case, few debtors will choose Chapter 11 if a Chapter 13 bankruptcy is an option. Debtors may also be forced into bankruptcy by creditors in the case of an involuntary bankruptcy , but only under Chapters 7 or 11. However, in most instances,
736-439: 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 would then be at the discretion of the judge or U.S. Trustee. In some countries, such as
828-410: 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
920-613: 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
1012-455: 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 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,
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#17327648423201104-434: A government and distribute assets to creditors. Governments can be insolvent in terms of not having money to pay obligations when they are due. If a government does not meet an obligation, it is in " default ". As governments are sovereign entities, creditors who hold debt of the government cannot easily seize the assets of the government to re-pay the debt (though " Vulture funds " often find ways to do so). The recourse for
1196-402: A liquidator of their own choice. This process is known as creditors voluntary liquidation (CVL), as opposed to members voluntary liquidation (MVL) which is for solvent companies. Alternatively, a creditor can petition the court for a winding-up order which, if granted, will place the company into what is called compulsory liquidation or winding up by the court. The liquidator realises the assets of
1288-439: A loss is accepted by all parties, negotiation is often able to resolve the situation without bankruptcy. A company that is balance-sheet insolvent may still have enough cash to pay its next bill on time. However, most laws will not let the company pay that bill unless it will directly help all their creditors. For example, an insolvent farmer may be allowed to hire people to help harvest the crop, because not harvesting and selling
1380-562: A mortgage, avoid "underwater" junior mortgages or other liens, pay back taxes over time, or partially repay general unsecured debt . In recent years, some bankruptcy courts have allowed Chapter 13 to be used as a platform to expedite a mortgage modification application. An individual who is badly in debt can typically file for bankruptcy either under Chapter 7 ( liquidation, or straight bankruptcy ) or Chapter 13 ( reorganization ). In some cases, options may also include Chapter 12 (family farmer reorganization) and Chapter 11 (reorganization of
1472-399: A new FHA mortgage loan just 25 months after discharge, and Fannie Mae and Freddie Mac loans after 36 months. However, during the pendency of a Chapter 13 case, the debtor is not permitted to obtain additional credit without the permission of the bankruptcy court. Moreover, creditors may not even be willing to risk lending money to such an individual, regardless of their legal ability to make
1564-983: A partial discharge of the student loan. Student loan borrowers may benefit from restructuring their payments through a Chapter 13 bankruptcy repayment plan, but few qualify for discharge of part or all of their student loan debt. Bankruptcy fraud is a white-collar crime most typically involving concealment of assets by a debtor to avoid liquidation in bankruptcy proceedings. 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 . Multiple filings are not in and of themselves criminal, but they may violate provisions of bankruptcy law. In
1656-464: 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. In Australia, bankruptcy
1748-407: A pre-arranged sale of the company's business, often to its directors or owners. The process can be seen as controversial because the creditors do not have the opportunity to vote against the sale. The rationale behind the device is that the swift sale of the business may be necessary or of benefit to enable a best price to be achieved. If the sale was delayed, creditors would ultimately lose out because
1840-433: A reduction of 8.6% over 2010. Some of the duties of the trustee in bankruptcy are to: Creditors become involved by attending creditors' meetings. The trustee calls the first meeting of creditors for the following purposes: 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
1932-477: A request. However, this disadvantage is not unique to Chapter 13; it may also apply to individuals currently in a Chapter 11 or Chapter 12 case or those who are in (or have recently been in) a Chapter 7 case. The advantages of Chapter 13 over Chapter 7 include the ability to stop foreclosures although a foreclosure would be reinstated upon completion of the bankruptcy; achieve a "super discharge" of debts not dischargeable under Chapter 7; "value collateral"; bifurcate
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#17327648423202024-422: A sovereign entity - facing cash flow problems and financial distress, to reduce and renegotiate its delinquent debts in order to improve or restore liquidity and rehabilitate so that it can continue its operations. Although the term "bankrupt" may be used referring to a government, sovereign states do not go bankrupt. This is so because bankruptcy is governed by national law; there exists no entity to take over such
2116-522: A successful rescue of a company's business via a sale, but not of the company itself. Since the introduction of the collective insolvency procedure of Administration in 1986, the legislators have decided to set a shelf life on the administrative receivership or, in Scotland, receivership procedure and it is no longer possible to appoint an administrative receiver or, in Scotland, receiver under security created after 15 September 2003. In individual cases
2208-399: Is 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. Bankruptcy, also referred to as insolvency in Canada, is governed by
2300-462: 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. Since 1996, Israeli personal bankruptcy law has shifted to a relatively debtor-friendly regime, not unlike the American model. In May 2016,
2392-558: 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 . Acts of bankruptcy are defined in
2484-559: 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
2576-517: 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. In Canada, bankruptcy always means liquidation. There is no way for a company to emerge from bankruptcy after restructuring, as is
2668-531: 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. In a similar way, Philip II of Spain had to declare four state bankruptcies in 1557, 1560, 1575 and 1596. According to Kenneth S. Rogoff, "Although
2760-500: Is an offence under the insolvency laws for a corporation to continue in business while insolvent. In others (like the United States with its Chapter 11 provisions), the business may continue under a declared protective arrangement while alternative options to achieve recovery are worked out. Increasingly, legislatures have favored alternatives to winding up companies for good. It can be, in several jurisdictions, grounds for
2852-477: Is defined both in terms of cash flow and in terms of balance sheet in the UK Insolvency Act 1986 , Section 123, which reads in part: 123.-(1) A company is deemed unable to pay its debts --- (a) if a creditor (by assignment or otherwise) to whom the company is indebted in a sum exceeding £750 then due has served on the company, by leaving it at the company's registered office, a written demand (in
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2944-758: Is governed by the Corporations Act 2001 (Cth). Companies can be put into Voluntary Administration , Creditors Voluntary Liquidation, and Court Liquidation. Secured creditors with registered charges are able to appoint Receivers and Receivers & Managers depending on their charge. In the British Virgin Islands , insolvency law is primarily codified in the Insolvency Act, 2003 and the Insolvency Rules, 2005. In Canada , bankruptcy and insolvency are generally regulated by
3036-420: Is insolvent may be put into liquidation (sometimes referred to as winding-up). The directors and shareholders can instigate the liquidation process without court involvement by a shareholder resolution and the appointment of a licensed Insolvency Practitioner as liquidator. However, the liquidation will not be effective legally without the convening of a meeting of creditors who have the opportunity to appoint
3128-452: Is not a synonym for bankruptcy , which is a determination of insolvency made by a court of law with resulting legal orders intended to resolve the insolvency. Accounting insolvency happens when total liabilities exceed total assets (negative net worth ). The principal focus of modern insolvency legislation and business debt restructuring practices no longer rests on the liquidation and elimination of insolvent entities but on
3220-548: Is owed, but does not have the appropriate form of payment. For example, a person may own a large house and a valuable car, but not have enough liquid assets to pay a debt when it falls due. Cash-flow insolvency can usually be resolved by negotiation . For example, the bill collector may wait until the car is sold and the debtor agrees to pay a penalty. Balance-sheet insolvency is when a person or company does not have enough assets to pay all of their debts. The person or company might enter bankruptcy , but not necessarily. Once
3312-557: 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. 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
3404-445: Is the equal and best satisfaction of creditors. If the interests of creditors are respected, insolvent companies are offered different ways to restructure their businesses, for example by implementing an 'insolvency plan' ( Insolvenzplan ) . While regular insolvency proceedings are led by a court-appointed insolvency administrator, 'debtor-in-possession' proceedings are common since the legislative changes in 2012. For natural persons,
3496-554: Is the inability of a debtor to pay their debt."). While technical insolvency is a synonym for balance-sheet insolvency, cash-flow insolvency and actual insolvency are not synonyms. The term "cash-flow insolvent" carries a strong (but perhaps not absolute) connotation that the debtor is balance-sheet solvent, whereas the term "actually insolvent" does not. Cash-flow insolvency involves a lack of liquidity to pay debts as they fall due. Balance sheet insolvency involves having negative net assets —where liabilities exceed assets. Insolvency
3588-400: 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
3680-571: The Bankruptcy and Insolvency Act and is applicable to businesses and individuals. For example, Target Canada , the Canadian subsidiary of the Target Corporation , the second-largest discount retailer 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 , a federal agency , is responsible for ensuring that bankruptcies are administered in
3772-488: The Bankruptcy and Insolvency Act . An alternative regime is available to larger companies (or affiliated groups) under the Companies' Creditors Arrangements Act , where total debts exceed $ 5 million. In Germany , insolvency proceedings, both for companies and for natural persons, are regulated by the Insolvency Act (Insolvenzordnung), in effect since 1999 but with significant changes in 2012. The goal of insolvency law
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3864-465: The Insolvency Act 1986 which aim to provide time for the rescue of a company or, at least, its business. These are Administration and Company Voluntary Arrangement : One particular type of Administration that is becoming more common is called pre pack administration (more information under administration (law) ). In this process, immediately after appointment the administrator completes
3956-659: The Insolvency and Bankruptcy Code 2016. The Insolvency and Bankruptcy Board of India (IBBI) is the regulator for overseeing insolvency proceedings and entities like Insolvency Professional Agencies (IPA), Insolvency Professionals (IP) and Information Utilities (IU) in India . Insolvent citizens may not contest/be appointed for any public office, nor may they participate in govt exams. They are also not allowed to emigrate out. Iranian government Tax, finance and bankruptcy administration handles corporations . First insolvency law
4048-804: The Parliament of India passed the Insolvency and Bankruptcy Code (IBC), updating outdated corporate insolvency laws. The IBC streamlined the process, reducing delays from a decade to 180 days, and replaced the Board for Industrial and Financial Reconstruction (BIFR) with a market-driven approach. Dutch bankruptcy law is governed by the Dutch Bankruptcy Code ( Faillissementswet ). The code covers three separate legal proceedings. Federal Law No. 127-FZ "On Insolvency (Bankruptcy)" dated 26 October 2002 (as amended) (the "Bankruptcy Act"), replacing
4140-700: The United Kingdom , bankruptcy is limited to individuals; other forms of insolvency proceedings (such as liquidation and administration ) are applied to companies. In the United States , 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
4232-560: The Verbraucherinsolvenzverfahren (literally "insolvency proceeding for individual consumers") allows discharge of all debts after three years, if certain conditions are met. In Hong Kong , insolvency is primarily governed by the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) and the Companies (Winding Up) Rules (Cap 32H). In India , bankruptcy and insolvency are generally regulated by
4324-441: The disposable income necessary to fund a viable Chapter 13 plan (see below). Furthermore, Section 109(e) of Title 11, United States Code sets forth debt limits for individuals to be eligible to file under Chapter 13 : unsecured debts of less than $ 419,275, and secured debts of less than $ 1,257,850. Under Chapter 13, the debtor proposes a plan to pay his or her creditors over a 3-to-5 year period. This written plan details all of
4416-680: The ordinary course of business , or cannot pay its debts as they become due, or is insolvent within the meaning of the Bankruptcy Code . This is important because certain rights under the code may be invoked against an insolvent party which are otherwise unavailable. The United States has established insolvency regimes which aim to protect the insolvent individual or company from the creditors, and balance their respective interests. For example, see Chapter 11, Title 11, United States Code . However, some state courts have begun to find individual corporate officers and directors liable for driving
4508-480: The Bankruptcy Court has the power to approve a chapter 13 plan without the approval of creditors as long as it meets the statutory requirements under chapter 13. Chapter 13 plans are usually three to five years in length and may not exceed five years. Chapter 13 is in contrast to the purpose of Chapter 7 , which does not provide for a plan of reorganization, but provides for the discharge of certain debt and
4600-627: 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
4692-549: The Enforcement and Collection Authority. Insolvency proceedings above NIS 150,000 individual debtors file the documents will be conducted before the official receiver (the Insolvency Commissioner) and, if a creditor want to file against a debtor, he needs to open process, before the magistrate's court that hears in the district. Company bankruptcy will be conducted before District Court. Simultaneously, with
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#17327648423204784-516: 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
4876-486: 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
4968-440: The U.S., bankruptcy fraud statutes are particularly focused on the mental state of particular actions. Bankruptcy fraud is a federal crime in the United States. Bankruptcy fraud should be distinguished from strategic bankruptcy , which is not a criminal 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
5060-453: 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: Even if a debtor proves all three elements, a court may permit only
5152-494: 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
5244-547: The amount given to the debtor continued to collect interest, allowing the debtor to find a way to pay the amount owed without losing their assets. The disadvantage of filing for personal bankruptcy is that, under the Fair Credit Reporting Act , a record of this stays on the individual's credit report for up to 7 years (up to 10 years for Chapter 7); still, it is possible to obtain new debt or credit (cards, auto, or consumer loans) after only 12–24 months, and
5336-504: The bankruptcy estate is dealt by an official receiver, appointed by the court. In some cases the file is transferred to RTLU (OR Regional Trustee Liquidator Unit) that will assess your assets and income to see if you can contribute towards paying costs of bankruptcy or even discharge part of your debts. Under the Uniform Commercial Code , a person is considered to be insolvent when the party has ceased to pay its debts in
5428-400: 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 debt load 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 to halt all debt recovery efforts against
5520-437: The case of registered commercial entities). Turkish insolvency law is regulated by Enforcement and Bankruptcy Law (Code No: 2004, Original Name: İcra ve İflas Kanunu). The main concept of the insolvency law is very similar to Swiss and German insolvency laws. Enforcement methods are realizing pledged property, seizure of assets and bankruptcy. In the United Kingdom , the term bankruptcy is reserved for individuals. Insolvency
5612-420: The company and distributes funds realised to creditors according to their priorities, after the deduction of costs. In the case of Sole Trader Insolvency , the insolvency options include Individual Voluntary Arrangements and Bankruptcy . It can be a civil and even a criminal offence for directors to allow a company to continue to trade whilst insolvent. However, two new insolvency procedures were introduced by
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#17327648423205704-458: The company while they formulate a plan to restructure. The People's Republic of China legalized bankruptcy in 1986, and a revised law that was more expansive and complete was enacted in 2007. 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
5796-614: 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
5888-452: 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
5980-579: The court decides to show rare clemency by accepting a debtors application for debt restructuring , in which case an individual may have the amount of remaining debt reduced or be released from the debt. 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. A person may be declared bankrupt with an application submitted to
6072-479: The creditor is to request to be repaid at least some of what is owed. However, in most cases, debt in default is refinanced by further borrowing or monetized by issuing more currency (which typically results in inflation or hyperinflation ). Insolvency regimes around the world have evolved in very different ways, with laws focusing on different strategies for dealing with the insolvent. The outcome of an insolvent restructuring can be very different depending on
6164-433: The crop would be even worse for his creditors. It has been suggested that the speaker or writer should either say technical insolvency or actual insolvency in order to always be clear – where technical insolvency is a synonym for balance sheet insolvency, which means that its liabilities are greater than its assets , and actual insolvency is a synonym for the first definition of insolvency ("Insolvency
6256-401: 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
6348-482: 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). The Statute of Bankrupts of 1542 was the first statute under English law dealing with bankruptcy or insolvency . Bankruptcy
6440-417: The debtor may choose under which chapter to file. In the case of an involuntary bankruptcy, the debtor may also choose to convert from the forced Chapter 7 or 11 proceeding into a proceeding under another chapter. The debtor's financial characteristics and the type of relief sought play a tremendous role in the choice of chapters. In some cases, the debtor simply cannot file under Chapter 13, as he or she lacks
6532-417: The development of international capital markets was quite limited prior to 1800, we nevertheless catalog the various 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." The principal focus of modern insolvency legislation and business debt restructuring practices no longer rests on
6624-499: 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
6716-505: 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 the business. For private households, it is important to assess the underlying problems and to minimize the risk of financial distress to recur. It has been stressed that debt advice, a supervised rehabilitation period, financial education and social help to find sources of income and to improve
6808-440: 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
6900-451: The existence of such a ritual is doubted. 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 have. However, servants of
6992-491: 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
7084-475: The laws of the state in which the insolvency proceeding is run, and in many cases different stakeholders in a company may hold the advantage in different jurisdictions . In Anguilla , the insolvency of individuals is regulated under the Bankruptcy Act (Cap B.15) and corporate insolvency is governed by the Bankruptcy Act (Cap B.15) or the Companies Act (Cap C.65). In Australia , corporate insolvency
7176-525: 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
7268-472: The liquidation of non-exempt property. A Chapter 13 plan may be looked at as a form of debt consolidation , but a Chapter 13 allows a person to achieve much more than simply consolidating his or her unsecured debt such as credit cards and personal loans. A chapter 13 plan may provide for the four general categories of debt: priority claims, secured claims, priority unsecured claims, and general unsecured claims. Chapter 13 plans are often used to cure arrearages on
7360-408: 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
7452-484: The prescribed form) requiring the company to pay the sum so due and the company has for 3 weeks thereafter neglected to pay the sum or to secure or compound for it to the reasonable satisfaction of the creditor,... (2) A company is also deemed unable to pay its debts if it is proved to the satisfaction of the court that the value of the company's assets is less than the amount of its liabilities, taking into account its contingent and prospective liabilities... A company which
7544-403: 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
7636-493: The price obtainable for the assets would be reduced. In addition to the above-mentioned corporate insolvency procedures, a creditor holding security over an asset of the company may have the power to appoint an insolvency practitioner as administrative receiver or, in Scotland , receiver. The process, latterly known as administrative receivership or, in Scotland, receivership, has existed for many years and has often resulted in
7728-413: The provisions of the Bankruptcy Act. 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-sheet insolvency. Cash-flow insolvency is when a person or company has enough assets to pay what
7820-401: The remodeling of the financial and organizational structure of debtors experiencing financial distress so as to permit the rehabilitation and continuation of their business. This is known as business turnaround or business recovery . Implementing a business turnaround may take many forms, including keep and restructure, sale as a going concern, or wind-down and exit. In some jurisdictions, it
7912-487: 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
8004-431: The security interest of creditors in certain property that creditors are either charging too much interest for, or are over-secured, or both, and leading to a " cram down " modification of the debt; and prevent collection activities against non-filing co-signers ("co-debtors") during the life of the case. A chapter 13 plan is a document filed with or shortly after a debtor's Chapter 13 bankruptcy petition. The plan details
8096-511: 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. Bankruptcy in Israel is governed by the Insolvency and Rehabilitation Law, 2018. Insolvency proceedings below NIS 150,000 will be administered entirely by
8188-442: 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
8280-429: The transactions (and their durations) that will occur, and repayment according to the plan must begin within 30 to 45 days after the case has started. During this period, his or her creditors cannot attempt to collect on the individual's previously incurred debt except through the bankruptcy court. In general, the individual gets to keep their property, and his or her creditors end up with less money than they would have had
8372-557: 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 of reorganization to reorganize their financial affairs while under the bankruptcy court 's protection. The purpose of chapter 13 is to enable an individual with a regular source of income to propose a chapter 13 plan that provides for their various classes of creditors. Under chapter 13,
8464-487: Was adopted 1935. Those who claim inability are temporary exempt from debt payment. In Ireland , insolvency is governed by the Companies Act 2014 . In Russia, insolvency law is governed by Federal Law No. 127-FZ "On Insolvency (Bankruptcy)" and Federal Law No. 40-FZ "On Insolvency (Bankruptcy) of Credit Institutions". In South Africa , owners of businesses that had at any stage traded insolvently (i.e. that had
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