As with all aspects of a legal system, bankruptcy laws vary from country to country. The differences can be substantial. This article is written from the perspective of United States bankruptcy law. With a better understanding of bankruptcy systems around the globe, Americans can better understand their own bankruptcy codes and processes.
Like many areas of common law in the United States, American bankruptcy law is historically rooted in the bankruptcy laws of England. Although since that time the systems have diverged considerably, the American bankruptcy system can be understood as a parallel evolution of bankruptcy law in the English-speaking world.
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The first bankruptcy laws in England were enacted in the 1500s. Initially these laws applied to creditors, rather than debtors. In addition, rather than functioning as a (usually) voluntary way to recover from the burden of debt, bankruptcy was used as a punishment. Most often it was used to penalize traders. Over time, this evolved into a system for resolving problems between debtors and creditors.
In the United States, this tradition was taken up initially in the Constitution. Since that time, United States statuary law has developed around the issue of bankruptcy. The formal legal code of the United States contains a section known as the Bankruptcy Code. This code specifies the requirements, regulations, and procedures surrounding bankruptcy proceedings. Various chapters of this specify different kinds of bankruptcy. You may be familiar with names like Chapter 7 and Chapter 11.
In the United Kingdom, the English legal tradition has since evolved away from its origins into a system where bankruptcy only applies to individuals. Companies, in contrast to the historical origins of bankruptcy, are placed in an alternative but very similar legal situation called administration. The term "in administration" is also used for certain aspects of bankruptcy law in the United States. In Scotland, the term 'sequestration' is used instead of 'bankruptcy.'
In Switzerland, bankruptcy is only available to companies. A Swiss bankruptcy is primarily focused on liquidating the assets of a company. In effect, if a company goes bankrupt in Switzerland, parts of it are sold off until the creditors are paid back in full.
In Sweden, bankruptcy is an option for individuals, but is rarely used. If an individual becomes insolvent-the usual situation which results in bankruptcy filing in the US and the UK-they can participate in a plan where they pay as much as possible to the creditors over the course of five years, after which point other debts are canceled. This plan was only enacted in 2006, however.
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