GLOBAL TRENDS IN PERSONAL BANKRUPTCY

by

Rafael Efrat*

I. INTRODUCTION

During the last two decades, many countries have experienced

dramatic reforms in the area of personal bankruptcy. By in large, the

reforms have been adopted with the aim of providing financial relief to the

growing number of over-indebted and financially fragile individuals.

Nonetheless, conspicuous disparities still exist among countries in their

formulation of the fresh start policy and in the utilization level of bankruptcy

by individuals.

This Article first provides an overview of the disparities among

countries in their approaches to the fresh start policy. It suggests that the

debt relief available to individuals around the world ranges from no relief at

all to a largely on-demand regime of debt forgiveness. It then attempts to

identify plausible reasons for the marked differences among the various

countries. It hypothesizes that the various formulations of the fresh start

policy in personal bankruptcy around the globe are a function of the

financial vulnerability facing people situated in a given country. That is, to

*Assistant Professor, California State University, Northridge. J.S.D. Candidate, Stanford Law School; J.S.M., 1998, Stanford Law School; J.D., 1992 University of Southern California Law Center.

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the extent that individuals in a given country have access to significant

credit, and to the extent those individuals are protected by a limited

government welfare safety net, one is more likely to find a fresh start policy

in that country that is broad in scope. Conversely, to the extent that the

government in a particular country has opted not to deregulate the

consumer credit market and has continuously provided broad welfare

features to its citizens, then one is more likely to find a stingy set of debt

relief in that country, if any.

Moreover, the global disparities in the scope of the fresh start policy

are plausibly a product of a country’s pre-disposition towards

entrepreneurship. While not yet empirically tested, there seems to be a

relationship between the availability of debt relief in a bankruptcy regime

and the extent to which the government wishes to foster an entrepreneurial

risk undertaking in society. Countries that favorably view entrepreneurship

seem to have adopted broader debt relief provisions in their bankruptcy

laws as an attempt to provide incentives for individuals to become self

employed. Since entrepreneurs generally face a higher risk of financial

failure as compared to wage earners, a broad fresh start policy in

bankruptcy provides a necessary cushion to accommodate their increased

financial vulnerability. Conversely, countries that have a centralized

economy or have a distinct preference toward large scale or government

owned enterprises have little, if any, value for debt relief for individual

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entrepreneurs.

Bankruptcy is not only designed differently in different countries, but it

is also being utilized to a much-varied extent in different parts of the globe.

For example, individuals in the United States, Canada and Australia are

dramatically more likely to file for bankruptcy relief than individuals living in

New Zealand, Japan, England and Israel. This Article presents alternative

hypotheses for the remarkably different utilization rates of personal

bankruptcy around the globe.

II. GLOBAL CONTEMPORARY PREVALENCE OF THE FRESH START POLICY1

The fresh start policy has now been in existence, in some form or

another, for almost three hundred years.2 In its essence, the fresh start

policy grants a financially troubled individual an opportunity to begin a new

and unencumbered financial chapter in his or her life. A fresh start policy

generally includes a provision for debt forgiveness, a provision allowing a

debtor to retain basic properties away from the reach of her creditors, and a

provision that minimizes various forms of postpetition discrimination against

the debtor.

1The following section in this Article substantially expands and updates an earlier summary of the state of fresh start policy around the globe. See Rafael Efrat, The Fresh start Policy in Bankruptcy in Modern Day Israel, 7 AM. BANKR. INST. L. REV. 555, 571-77 (1999).

2The concept of debt forgiveness is generally traced to England and the passage of the first discharge provision in 1705. See Lawrence Shepard, Personal Failures and the Bankruptcy Reform Act of 1978, 27 J.L. & ECON. 419, 421-22 (1984).

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The scope of a debt forgiveness provision in bankruptcy, a central

feature of many bankruptcy systems’ fresh start policy, manifests, to a large

degree, the different gradation of the fresh start policy globally. Hence, the

different gradation of the fresh start policy around the world could be

analyzed based on the availability, certainty, and promptness of the debt-

forgiveness feature. Applying this three-prong criterion, three

contemporary approaches to debt forgiveness and fresh start policy can be

identified around the globe.

First, there is the conservative camp. The central feature in the

bankruptcy regime of countries belonging to this camp is the conspicuous

absence of any debt forgiveness provision to consumers. The policies of

these countries take one of two forms. In the first form, countries simply

hold that non-merchant individuals are ineligible to file for bankruptcy

protection and therefore are not entitled to any debt forgiveness. Included

in this camp are some Asian countries such as China, Vietnam and

Mongolia;3 some former Eastern Block countries such as Bulgaria, Ukraine 3Vietnam, Mongolia and China do not provide any bankruptcy mechanism for individuals, whether or not they operate a business. See MARTINDALE-HUBBELL, INTERNATIONAL LAW DIGEST, Vtnm-6 (2001) (“Regulations on bankruptcy in Vietnam apply to enterprises (not individuals)”); Richard L. Bohanon & William C. Plouffe, Jr., Mongolian Bankruptcy Law: A Comparative Analysis with the American Bankruptcy System, 7 TULSA J. COMP. & INT’L L. 1, 6 (1999) (“The Mongolian Bankruptcy Law is focused entirely on commercial entities. . . . The law does not provide for an individual to be a debtor.”); Xianchu Zhang, Consumer Bankruptcy: Urgency and Difficulties in China 6-7 (July 6, 2001) (unpublished manuscript, on file with author) (“[L]egal rules governing consumer bankruptcy and protection of creditor of

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and Hungary;4 some Middle Eastern countries such as Turkey and Saudi

Arabia;5 some Mediterranean countries such as Italy and Greece.6 However,

this group is primarily composed of South and Central American countries

such as Brazil, Mexico, Argentina, Bolivia, El Salvador, Honduras, Panama

consumer/debtor are virtually undeveloped. Currently, the application of bankruptcy rules in China is limited to only enterprise debtors. . . . [P]ersonal bankruptcy as a legal institution has not been recognized by the legal systems of China. . . . For example, Article 107 of the General Principles of Civil Law of 1986 stipulates that debts shall be repaid. If the debtor is unable to repay the debt at the moment, the repayment may be made in installments through the creditors’ consent or the court judgment.”).

4 See MARTINDALE-HUBBELL, supra note 3, at Bul-4 (“Bankruptcy proceedings can be brought by or against state enterprise, as well as private business, but not against individuals in their noncommercial capacity.”); Kevin P. Block, Ukranian Bankruptcy Law, 20 LOY. L.A. INT'L & COMP. L.J. 97, 99 (1997) (noting that in Ukraine, the law does not allow individuals to declare bankruptcy); Julia M. Metzger & Samuel L. Bufford, Exporting United States Bankruptcy Law: The Hungarian Experience, 21 CAL. BANKR. J. 153, 154 (1993) (“At the present time only businesses are eligible for bankruptcy.”).

5 In Turkey, only merchants, partnerships and corporations may pursue bankruptcy relief. See MARTINDALE-HUBBELL, supra note 3, at Tur-5. Similarly, under the Saudi Arabian Bankruptcy Code, merchants may commence bankruptcy proceedings but under the Shari’ah principles are not entitled to obtain a discharge of their debts. See MARTINDALE-HUBBELL, supra note 3, at SaA-4.

6 In Italy, bankruptcy relief is available only to merchants. See IAN F. FLETCHER, THE LAW OF INSOLVENCY 7 & n. 17 (1st ed. 1990) (stating that some countries, including Italy, have retained a "purely mercantile application" of bankruptcy laws). Merchants in Italy who seek bankruptcy relief are subjected to significant penalties. See Mourizio Bernardi, The Bankruptcy Laws of Italy, in EUROPEAN BANKRUPTCY LAWS 95, 103 (David A. Botwinik & Kenneth W. Weinrib eds., 2d ed. 1986) (explaining that bankrupt merchant in Italy can go to prison for period of six months to two years if during three year period prior to bankruptcy declaration she did not keep proper business books, or if prior to bankruptcy she spent excessively, or if she wasted a

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and Venezuela.7

Under the second form, countries such as the Czech Republic, Chile

and Egypt allow all individuals to petition for bankruptcy protection, but

they are not entitled to obtain forgiveness of their debts as part of the

significant part of her assets in imprudent activities). In addition to the penalties that are imposed on the bankrupt in Italy, the bankrupt is not entitled to debt-forgiveness. Renato Viale, Questionnaire on Creditors' Rights against Business Debtors, in INTERNATIONAL LOAN WORKOUTS AND BANKRUPTCIES 441, 453 & 456 (Richard A. Gitlin & Rona R. Mears eds., 1989) (asserting that debts are not discharged under Italian bankruptcy law). Similarly in Greece, while debt forgiveness is available in bankruptcy, only merchants may be declared bankrupt. See MARTINDALE-HUBBELL, supra note 3, at Gre-4 (“Only traders . . . may be declared bankrupt. . . . A bankrupt is rehabilitated on expiration of ten years after bankruptcy judgment, if latter is followed by judicial composition, or prior to that date if bankrupt has paid creditors in full both principal and interest or obtains a complete release from them.”).

7 Brazil provides bankruptcy relief for individuals, but only if they operate or engage in business or trade. See MARTINDALE-HUBBELL, supra note 3, at Brz-6 (“Only merchants and corporations can be adjudged bankrupt. . . . The bankrupt may obtain an order of discharge (rehabilitation) if he has fulfilled the terms of his composition agreement, paid his creditors in full both principal and interest or obtained from them full releases, unless convicted of fraudulent bankruptcy or similar crime, in which case he cannot be discharged until five years after serving the sentence therefor.”); Antonio Mendes, The New Latin American Debt Regime- A Brief Incursion into Bankruptcy and the Enforcement of Creditor’s Rights in Brazil, 16 J. INT’L L. BUS. 107, 108 (1995) (Brazilian law distinguishes between comerciante (businessmen) –individual engaged in trade and in industrial and commercial enterprises- and professionals and private persons. Concordata is only available to comerciantes,. . . . Professionals and private persons are not covered by the bankruptcy laws but are subject to a concurso de credores which is governed by civil law.”). Likewise, in Mexico there is no provision for consumer bankruptcy. See E-mail from William Weyandt, Director, International Consumer Risk, Ford Financial, to Elizabeth Bobenmoyer, Senior Attorney, Ford Financial (Nov. 15, 2001)(on file with author). In Argentina, bankruptcy law is applicable only to licensed merchants and business entities. See MARTINDALE-HUBBELL, supra note 3, at

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process.8 Under both of these approaches in the conservative camp, the

common theme is that bankruptcy is a creditor-oriented mechanism and is

not designed to serve the interests of financially troubled individuals.

Arg-7. In Bolivia, bankruptcy applies only to merchants who may obtain a discharge of their debts if “they have complied with the agreements made with their creditors or have fully paid their obligations.” See MARTINDALE-HUBBELL, supra note 3, at Bol-3. Similarly, in El Salvador Honduras, Panama and Venezuela bankruptcy is available only to merchants. MARTINDALE-HUBBELL, supra note 3, at El Sal-4 (“Bankruptcy relates to merchants and must be declared by commercial judge in special proceeding.”); MARTINDALE-HUBBELL, supra note 3, at Hon-6; MARTINDALE-HUBBELL, supra note 3, at Pan-11; MARTINDALE-HUBBELL, supra note 3, at Ven-4. See also E-mail from Andr’s Vielma Galvis, Ford Motor Credit, S.A. Venezuela, to author (Feb. 28, 2002) (on file with author) (“Individuals that do not run a business can not file for bankruptcy protection. In Venezuela, the bankruptcy is only granted to either natural persons who run a business (merchants- comerciantes), or companies. For natural persons who are not merchants, our Civil Code contemplates a figure denominated “cesion de bienes” (goods cession), which contemplates the possibility that a debtor (natural person, not merchant), abandons all its assets through an auction and pay to the creditors proportionally to the amount of their debts with the product of the auction. In case that the price of the assets results not enough to totally cover the debts, the debtor remains constrained to pay the difference in the future when he gets money or assets enough to pay. There is no remission of debts in this procedure. . . . In the case of bankruptcy (either merchants or companies), the general rule is that after the bankruptcy process liquidation, the creditors regain their rights against the debtor for the balances pending after the process, unless there is an agreement that states the opposite.”).

8 In the Czech Republic individuals are permitted to commence bankruptcy protection but discharge is unavailable unless the debtor enters into settlement arrangement with the creditors. See Helmut Gerlach, Bankruptcy in the Czech Republic, Hungary, and Poland and Section 304 of the United States Bankruptcy Code, Proceedings Ancillary to Foreign Bankruptcy Proceedings, 22 MD. J. INT’L L. & TRADE 81 (1998). In Chile and Egypt, individuals are not entitled to debt forgiveness at the conclusion of the bankruptcy process. See Ricardo Sandoval, Chilean Legislation and

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Next, there is the moderate camp. Unlike countries belonging to the

conservative camp that provide no debt relief to consumers, countries

belonging to the moderate camp offer debt forgiveness to financially

distressed consumers. However, while debt forgiveness is available in these

countries, it is far from certain whether an individual will be granted relief.

In these countries a debtor is required to apply for discharge and a judge,

exercising discretion and guided by statutory guidelines, decides whether,

and under what circumstances, that individual’s debts should be forgiven.

Here, one finds some countries from the Far East and Asia such as India,

Pakistan, Japan, Singapore, and the Philippines;9 some Scandinavian

Cross-Border Insolvency, 33 TEXAS INT’L L. J. 557, 577 (1998); Frederick W. Taylor, Jr. Questionnaire on Creditors' Rights Against Business Debtors, in INTERNATIONAL LOAN WORKOUTS AND BANKRUPTCIES, supra note 6, at 245, 273 (noting that "bankruptcy [in Egypt] does not eliminate the debt and, after bankruptcy, individual creditors can bring actions against the debtor for the amount of the debts that are not settled in bankruptcy.").

9 See D.S. CHOPRA, MULLA ON THE LAW OF INSOLVENCY IN INDIA 299-300 (3d ed. 1977) (discussing factors judge should consider in deciding whether to grant debtor discharge). In Pakistan, the bankruptcy petitioner may apply for discharge of debts following the assets’ liquidation. See MARTINDALE-HUBBELL, supra note 3, at Pak-10. In Japan, a judge may discharge the debts of honest petitioners who are found to be unable to pay their debts. See Report on Bankruptcy Law and the Trend of Consumer Bankruptcy in Japan from Takashi Yoshida, Primus Financial Services, Japan, to Elizabeth Bobenmoyer, Senior Attorney, Ford Financial 1 (Nov. 27, 2001); E-mail from Takashi Yoshida, Risk Management Department, Primus Financial Services, Japan, to author (Feb. 24, 2002 (on file with author). In Singapore, a debtor who is able to voluntarily commence bankruptcy petition, "may apply for an order of discharge after being adjudicated a bankrupt. On the hearing of the bankrupt's application, the court . . . may either grant or refuse an order of discharge, or suspend the order for a specified time or grant or discharge on terms. See Tan W. Tiang, Singapore, in INTERNATIONAL CORPORATE INSOLVENCY LAW, 488, 489, 503 (Dennis Campbell ed., 1992). In the Philippine, any bankruptcy petitioner “who owes at least 1,000 pesos may petition to be

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countries including Denmark,10 Norway,11 Finland,12 and Sweden13; some

countries from continental Europe such as Austria,14 Germany,15 and

France16; some Mediterranean countries including Portugal, Spain and

Israel17; and a number of African countries such as South Africa,18 Kenya,19

discharged from his debts.”

010 See IAIN RAMSAY, CONSUMER LAW IN THE GLOBAL ECONOMY: NATIONAL & INTERNATIONAL DIMENSIONS 287 (1997) (noting that in Denmark "[i]f the debtor is employed, discharge will only be granted if he or she pays a portion of the debts during a certain time, usually five years; if the debtor is unemployed or retired, it is possible to get a discharge without payments."). See also Hans Petter Graver, Consumer Bankruptcy: A Right or a Privilege? The Role of the Courts in Establishing Moral Standards of Economic Conduct, 20 J. CONSUMER POL'Y 161, 170 (1997) (stating that "[i]n the Danish Consumer Bankruptcy Act, the conditions for a discharge are that the consumer is hopelessly indebted, and that a discharge is warranted by the circumstances of the debtor."); Johanna Niemi-Kiesilainen, Changing Directions in Consumer Bankruptcy Law and Practice in Europe and USA, 20 J. Consumer Pol'y 133, 134 (1997) (noting that "[t]he Danish bankruptcy law was amended to include a specific procedure for consumer debt adjustment and discharge already in 1984.").

11 According to Norwegian law, "debtors who are permanently incapable of paying their debts, may be accorded a discharge of debts." See Graver, supra note 10, at 165. However, a "court may at its discretion refuse to give the debtor a discharge of debts, if such a solution would be morally offensive." Id. at 166.

212 See RAMSAY, supra note 10, at 287 (noting that pursuant to Adjustment of Debts of Private Individuals' Act from 1993, debtors in Finland may obtain discharge for unsecured debts).

313 See id. at 288 (according to 1994 Debt Insolvency Act of Sweden, "complete or partial discharge is possible if the debtor has no hope of paying his or her debts in the foreseeable future.").

414 In 1995, Austria revised its bankruptcy law making it possible for the first time for debtors to obtain a discharge. However, "[d]ischarge is only possible for debtors in 'good faith' who abide by the repayment schedule

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and Uganda.20

While debt forgiveness is theoretically possible in these countries,

empirical evidence suggests that few debtors obtain a discharge, since a

very small percentage of the petitioners take the initiative to apply for

discharge. For example, one study in Israel found that less than five percent

and who did not benefit from the bankruptcy procedure in the preceding twenty years." See id., at 298.

515 Under a new law that went into effect in Germany in 1997, a debtor may obtain a discharge if the debtor "paid all of his or her seizable income over a seven-year period and made an effort to increase his or her income." Id. at 288. See also Christoph G. Paulus, The New German Insolvency Code, 33 TEX. INT’L L.J. 141, 143-44 (1998) (“The Gesamtvollstreckungsordnung includes a discharge rule- not the Anglo-American rule but the Swiss rule: It keeps the creditors away only as long as the debtor does not achieve a certain income and wealth level. . . . After the closing of the [bankruptcy] procedure, the debtor will have to earn as much as possible for seven years and hand over this income to a trustee, who will divide it among creditors.”).

616 Under the French civil law, debtor, who in good faith becomes insolvent, may obtain a discharge but only of mortgage related debt, where the home of the debtor is sold through foreclosure and the secured credit cannot be fully repaid from the proceeds of this sale. See Francoise Domont-Naert, Legal Response to Problems of Consumer Indebtedness in Europe, in CONSUMER LAW IN THE GLOBAL ECONOMY- NATIONAL AND INTERNATIONAL DIMENSIONS 285, 288 (Iain Ramsay, ed., 1997).

717 In Portugal, discretionary debt forgiveness for consumers was introduced in the early 1990s. See Michelle Alexopoulos & Ian Domowitz, Personal Liabilities and Bankruptcy Reform: An International Perspective (Northwestern University Institute for Policy Research, Working Paper, 1998) (“Other legal reforms embodying discharge of personal debts in excess of available assets for at least some classes of debtors in 1993-1994 appear in . . . Portugal. . . .”). Similarly, judges in Spain generally discharge individual bankruptcy petitioners’ debts when assets are insufficient to repay outstanding debts. See Report on Spanish Bankruptcy Law from Javier Vives, Legal Advisor, FCE Bank/Ford- Spain, to Elizabeth Bobenmoyer, Senior Attorney, Ford Financial 1 (Nov. 27, 2001); E-mail from Javier Vives, Legal Advisor, FCE Bank/Ford- Spain, to author (Feb. 25, 2002) (on file with author). In Israel, judges may grant an individual bankruptcy petitioner a

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of petitioners eventually obtain a discharge.21 A similar phenomenon was

reported in England before its 1976 reform of the bankruptcy system. Prior

to reform, it was the debtor’s duty to formally ask the court to exercise its

discretion in granting the debtor a discharge. In 1975, the bankruptcy

reform committee in England proclaimed that it “[c]onsiders that evidence

that so many bankrupts appear never to avail themselves of the machinery

for obtaining a discharge is one of the most disquieting features of the

conditional or complete discharge as early as six months after the bankruptcy petition is filed. See Efrat, supra note 1, at 582-86.

818 A court in South Africa "may in its discretion, . . . either grant or refuse the application [for discharge], or may postpone the hearing of the application, or attach such conditions to the order [of discharge] . . . as it thinks fit . . . ." HAROLD E. HOCKLY, MARS: THE LAW OF INSOLVENCY IN SOUTH AFRICA 447 (7th ed. 1980). See also CATHERINE SMITH, THE LAW OF INSOLVENCY 288 (1973). However, a bankrupt automatically receives a discharge ten years after the commencement of the bankruptcy proceedings, unless the court orders otherwise. See 11 THE LAW OF SOUTH AFRICA 269 (Wa Joubert & Ja Faris eds., 1st ed. 1998).

9 19 See IAN R. MACNEIL, BANKRUPTCY LAW IN EAST AFRICA 152-56 (1966) (“The bankrupt may apply for discharge any time after adjudication, but the hearing will not be held until after conclusion of his public examination. Application for discharge is mandatory in Kenya and Uganda. . . . An absolute discharge may be granted [by the court]. . . to the extent that the bankruptcy was caused by misfortune without any misconduct on the bankrupt’s part.” The court may also deny discharge if the debtor has committed any offence or has engaged in certain enumerated types of dishonest or fraudulent conduct. The court is also empowered to suspend an order of discharge or grant the discharge subject to conditions).

0 20 See MACNEIL, supra note 19, at 152-56.

121 See Philip Shuchman, Field Observations and Archival Data On Execution Process and Bankruptcy in Jerusalem, 52 AM. BANKR. L.J. 341, 356-64 (1978).

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present system of bankruptcy law in this century . . . .”22

There are several reasons why few individuals apply for and obtain a

discharge in jurisdictions where it is the burden of the petitioner to initiate

formal proceedings to convince a judge to grant a discharge. First, some

may be deterred from applying due to the burdensome costs associated

with the procedure. In other cases, unrepresented debtors may not have

applied simply because they were unaware of the debt forgiveness feature

of bankruptcy. Lastly, other petitioners who were aware of the discharge

provision may have deliberately avoided applying for it because of fear of

attracting further publicity to their bankrupt status.23

While countries in the moderate camp avail debt relief to their

petitioners, the debt forgiveness feature is neither certain nor prompt. In

contrast, countries belonging to the liberal camp, offer debt forgiveness with

a high degree of certainty and with relative promptness. This is

accomplished primarily through the automatic granting of discharge within

relatively short period of time. The most liberal country in this camp is the

United States.24 Under Chapter 7 of the United States Bankruptcy Code,

22 BRIT. SEC. OF THE INT’L COMM. OF JURISTS, JUSTICE, BANKRUPTCY 25 (1975).

323 See SIR KENETH CORK, INSOLVENCY LAW & PRACTICE: REPORT OF THE REVIEW COMMITTEE 142 (1982) (“Prior to the Insolvency Act of 1976 [in England] the onus had been on the bankrupt to apply to the Court for discharge. Many did not do so, either through ignorance of the procedure or reluctance to attend open court and thus to attract further publicity.”).

424 See Charles J. Tabb, The Historical Evolution of the Bankruptcy Discharge,

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most of the debtor’s prepetition debts will be forgiven25 and the debtor will

keep all of her postpetition earnings.26 Unless there are specifically

designated nondischargeable claims,27 or it is proven that the debtor

engaged in certain prohibited conduct,28 the debtor will obtain a discharge

approximately four months after the commencement of the bankruptcy

petition.29 In practice, "[i]n the great majority of bankruptcies, at least in

recent years, no one bothers to press objections, and the debtor receives

65 AM. BANKR. L.J. 325 (1991)("[T]he United States may well have the most liberal discharge laws in the world.").

525 See 11 U.S.C. § 727(a),(b) (1994)(listing circumstances under which debtor may or may not receive a discharge of prepetition debts).

626 11 U.S.C. § 541(a)(6).

727 Nondischargeable claims include certain tax claims, fraudulently incurred obligations, claims arising out of fraud or embezzlement, spousal and child support debts, claims arising out of willful and malicious injuries, government fines, educational loans, and claims arising out of injuries caused by driving while intoxicated. See 11 U.S.C. § 523(a).

828 The prohibited conduct includes circumstances where: (1) the debtor, within one year before bankruptcy, fraudulently transferred or concealed property "with intent to hinder, delay, or defraud a creditor"; (2) the debtor failed to keep adequate financial records; (3) the debtor engaged in certain criminal misconduct during the bankruptcy proceedings; (4) the debtor was unable to explain satisfactorily any losses or deficiency of assets; (5) the debtor obtained a discharge in a previous bankruptcy petition filed less than six years before the commencement of the pending case. 11 U.S.C. § 727(a). The burden is placed on the creditors, the trustee or the United States trustee to file a timely complaint objecting to entry of the discharge order. See 11 U.S.C. § 727(c)(1); FED. R. BANKR. P. 4004.

929 Unless a timely objection to the discharge is made, a discharge order is automatically issued to the debtor within sixty days after the creditors' meeting. The creditors' meeting must take place within forty days after the bankruptcy petition is filed. See FED. R. BANKR. P. 4004(a), 2003(a).

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the discharge when the prescribed period expires."30 In the alternative, the

debtor may elect to proceed under Chapter 13 of the United States

Bankruptcy Code,31 where an expanded discharge will be granted upon the

completion of payments under the plan.32 The term of the repayment under

a Chapter 13 plan is between three and five years.33

In addition to the automatic discharge, the United States Bankruptcy

Code provides the debtor other means to start with a clean slate. For

example, there are broad exemption provisions in the United States

Bankruptcy Code to assist the debtor in her attempt to start over again.34

030 GEORGE M. TREISTER, ET AL., FUNDAMENTALS OF BANKRUPTCY LAW 367 (4th ed. 1996). In the case where the debtor has no assets, the trustee has a strong economic disincentive to discover fraud by the debtor because the trustee is paid by the debtor's estate. This is a reason why fewer objections to discharge are lodged today. See Lynn M. LoPucki, Reforming Consumer Bankruptcy Law: Four Proposal: Common Sense Consumer Bankruptcy, 71 AM. BANKR. L.J. 461, 467-70 (1997)(discussing strong economic disincentives in Bankruptcy Code that prevent trustees and creditors from objecting to debtors' discharge).

131 11 U.S.C. §§ 1301-1330 (providing for adjustment of debts of individuals with regular income).

232 For example, upon the successful completion of chapter 13 plan payments, the debtor is relieved from any liability arising out of fraud or for intentional injuries. Compare 11 U.S.C. § 1328(a) with 11 U.S.C. § 523(a) (providing that Chapter 13 discharge will include debts for fraud and malicious injury excepted from discharge §§ 523(a)(2) and (a)(6) in a Chapter 7 case).

33 See 11 U.S.C. §§ 1322(d), 1325(b)(1)(B).

434 See 11 U.S.C. § 522(b). The exemption provisions in the United States are relatively generous. See MICHELLE J. WHITE, CREDITORS' REMEDIES AND DEBTORS' RIGHT TO FILE FOR BANKRUPTCY: WHY DON'T MORE HOUSEHOLDS GO BANKRUPT? 1 (Feb. 7, 1996) (unpublished manuscript, on file with author) ("Since many states [in the U.S.] have high exemption levels, most debtors

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Moreover, the United States Bankruptcy Code prohibits certain

discriminatory conduct against the bankrupt.35

While not as broad as the fresh start policy in the United States, there

are a few other countries, most of which were former British colonies or

were influenced by British law, that provide the bankrupt with automatic

debt forgiveness. In England, for example, an individual who voluntarily

petitions for bankruptcy protection automatically obtains a discharge of her

prepetition debts after three years.36 The debtor, however, may keep only a

who file for bankruptcy [under chapter 7] can obtain a discharge from their debts without giving up any of their future income or any of their assets."). For example, this exemption scheme is generally broader than the one provided in England. See David Caplovitz, Personal Bankruptcy in America, in BANKING FOR PEOPLE: SOCIAL BANKING AND NEW POVERTY CONSUMER DEBTS AND UNEMPLOYMENT IN EUROPE - NATIONAL REPORTS 277, 277 (Udo Reifner & Janet Ford eds., 1992) ("In England, the bankruptcy law is harsh because the consumer has to give up practically everything he owns in order to apply for bankruptcy. In contrast, the American bankruptcy law is very generous."); G. Stanley Joslin, The Philosophy of Bankruptcy – A Re-Examination, 17 U. FLA. L. REV. 189, 194 (1964) (stating that the exemption scheme "has expanded tremendously in the United States . . . . The bankruptcy law of the United Kingdom provides for extremely small exemptions.").

535 For example, 11 U.S.C. § 525(a) prohibits governmental units from discriminating against a debtor in employment, in licensing, or in making similar grants solely because the debtor has been in bankruptcy. Section 525(b) prohibits a private party from discriminating against a debtor with respect to employment on bankruptcy-related grounds.

636 See FLETCHER, supra note 6, at 37 (observing that "first-time" bankrupts may receive a discharge automatically after an interval time of three years). However, where the debtor previously received a discharge in a bankruptcy petition that was commenced fifteen years before the pending petition, then the debt forgiveness can only be obtained through an application to the court. See id. at 37-38. In exercising her discretion, the judge may grant the application for discharge, refuse to grant it or make the discharge subject to conditions with respect to any subsequent income due the debtor, or with respect to property given to or acquired by debtor. See id. at 291.

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limited amount of exempt assets.37 Furthermore, during those two or three

years, the debtor is subject to various penalties and disabilities. Among the

disabilities imposed on the debtor before discharge are the following: (1)

the debtor may not acquire or dispose of property on his own account; (2)

the debtor is unable to freely enter into contractual relations or obtain

credit; (3) the debtor cannot be elected to the House of Parliament or any

local authority; (4) the debtor cannot be appointed, or act as, a Justice of the

Peace; (5) the debtor cannot hold a solicitor's practicing certificate; (6) the

debtor cannot act as a director of, or directly or indirectly take part in the

management of, a company without leave of court.38 Also, until the

discharge order is issued, the debtor's postpetition income is part of the

bankruptcy estate.39

See also Michael Adler, The Overseas Dimensions: What Can Canada and the United States Learn from Other Countries?, 37 OSGOODE HALL L.J. 415, 416 (1999) (“[The English Insolvency Act of 1986] introduced a number of changes, perhaps the most important of which was the automatic discharge of most bankrupts after three years- the exceptions being where the debtor has been bankrupt before (during the previous fifteen years), or has not cooperated with the Official Receiver or trustee who has supervised the bankruptcy.”).

737 See Insolvency Act 1986, § 283(2) (creating two categories of assets exempt from bankruptcy estate); see also supra note 34.

838 See FLETCHER, supra note 6, at 298-300.

939 See Insolvency Act 1986, § 307 (1) (giving trustee of bankruptcy estate power to claim any property acquired by debtor after bankruptcy commencement); FLETCHER, supra note 6, at 188 (discussing trustee's right to claim property acquired by debtor post-petition). However, the bankrupt is allowed to retain a portion of her post-petition income to the extent deemed necessary for her and her dependents' support. See id. For a detailed comparison between the fresh start policy in the United States and

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The insolvency laws of Canada, Australia, Hong Kong, New Zealand,

Taiwan, Russia, Scotland and the Netherlands follow approaches similar to

that of England. In Canada, an individual debtor who files a bankruptcy

petition the first time will automatically obtain a discharge within nine

months after the commencement of the bankruptcy petition, unless an

objection is made beforehand.40 However, where the individual debtor

previously filed for bankruptcy protection or where a timely objection to the

discharge is made, a judge has discretion in deciding whether to grant,

suspend, condition or deny the debtor a discharge order.41 Until the debtor

receives his discharge, various penalties are imposed on him. For example,

in many provinces such debtors are ineligible to serve as a member of a

municipal council. In addition, the undischarged debtor is precluded from

England, see Douglass G. Boshkoff, Limited, Conditional, And Suspended Discharges in Anglo-American Bankruptcy Proceedings, 131 U. PA. L. REV. 69, 69-125 (1982).

040 See 2 L. W. HOULDEN & C.H. MORAWETZ, BANKRUPTCY AND INSOLVENCY LAW OF CANADA 6-31 - 6-32 (3d. ed. 1993) (stating "[i]f an individual bankrupt has never been bankrupt beforehe or she is entitled to make use of the procedure for automatic discharge."); see also Jacob S. Ziegel, Canadian Perspectives on the Challenges of Consumer Bankruptcies, 20 J. CONSUMER POL'Y 199, 212 (1997).

141 See generally 2 HOULDEN & MORAWETZ, supra note 40, at 6-33 to 6-100. A court is prohibited from granting such a debtor an unconditional discharge where, among other things, the value of the debtor's assets does not equal at least fifty percent of the amount of the debtor's unsecured liabilities, the debtor failed to keep proper books, the debtor continued to trade after knowing that she was insolvent, or the debtor engaged in rash and hazardous speculations, unjustifiably extravagant living, gambling or culpable neglect of business affairs. See id. at 6-84 to 6-100.

17

initiating an action to enforce her property rights; she cannot serve as a

director of a corporation; she may not engage in trade without disclosing to

all those with whom she transacts that she is an undischarged bankrupt;

and she cannot obtain credit for more than $500 for a purpose other than

for necessities without informing the potential lender that she is an

undischarged bankrupt.42

In Australia, the bankrupt will automatically obtain a discharge three

years after commencing his bankruptcy proceedings, unless a timely

objection is made or the court rules otherwise.43 Likewise, in 1998 Hong

Kong adopted a bankruptcy regime that provides for an automatic discharge

of the petitioner after four years, unless the petitioner previously filed

242 See id. at 1-2 to 1-3.

343 See C. DARVALL ET AL., AUSTRALIAN BANKRUPTCY LAW & PRACTICE 4033 (Katie Florance, ed., 1992); DENNIS ROSE, AUSTRALIAN BANKRUPTCY LAW 226 (10th ed. 1994); Joan Carr, Business Failure and Social Inequality, 29 AUSTL. J. SOC. ISSUES 195, 212 (1994) (stating "[a]lthough the period of bankruptcy is usually three years, it may be extended to five years or to an indefinite period if the Court so orders."); Rosalind Mason & John Duns, Developments in Consumer Bankruptcy in Australia 30 (July 6, 2001) (unpublished manuscript, on file with author) (“[The Australian Bankruptcy] Act provides for three possible time frames for discharge from bankruptcy: early discharge, automatic discharge and late discharge. . . . [T]he bankrupt will be automatically discharged from bankruptcy three years from the date of filing his or her statement of affairs. A bankrupt may be discharged as early as six months after filing the statement of affairs upon making an application to the trustee. Conversely, the registered trustee or the Official Receiver may object to an automatic discharge in which case the discharge may not take effect until five, or in some cases eight, years after filing the statement of affairs.”).

18

bankruptcy, in which case, discharge will be granted after five years.44

Similarly, in New Zealand, the bankrupt will automatically obtain a discharge

three years after the commencement of a bankruptcy petition, unless the

debtor independently applies for and obtains a discharge earlier.45 In

44 See Charles D. Booth, Hong Kong’s New Bankruptcy Law: Is it Working? 6 (July 6, 2001) (unpublished manuscript, on file with author) (“The new discharge provisions, which incorporate aspects from both UK and Australian law, reflect the modern trend to enable most bankrupts to emerge from bankruptcy with a ‘fresh start’ after a reasonable period of time. In the case of a person not previously adjudged bankrupt, new Section 30A(2)(a) provides for the automatic discharge of the bankrupt at the end of the four years from the date of the making of a bankruptcy order. In the case of person who has been previously adjudged bankrupt, Section 30A(2)(b) delays the discharge for an additional year. However, Section 30A(3) provides that the date of discharge may be extended for up to three years in cases in which the trustee or a creditor raises a valid objection pursuant to new sub-section (4).”). Previously, debt forgiveness in Hong Kong was subject to complete judicial discretion. See Christopher J. Osborn, Hong Kong, in INTERNATIONAL CORPORATE INSOLVENCY LAW, supra note 9, at 250, 271 (court may grant, suspend, condition or deny bankrupt's application for discharge).

545 See F.C. SPRATT & P.D. MCKENZIE, SPRATT & MCKENZIE'S LAW OF INSOLVENCY 265 (2d ed. 1972); see also J.A.B. O'KEEFE & W.L. FARRANDS, INTRODUCTION TO NEW ZEALAND LAW 566-67 (3d. ed. 1976); Thomas G. W. Telfer, Consumer Bankruptcy Law and Repayment Plans in New Zealand: Curing Misinformed Choices and Reforming the Discharge, 19 (July 4, 2001) (unpublished manuscript, on file with author) (“the current provisions of the [New Zealand] Insolvency Act automatically discharge a bankrupt after a period of three years. While the bankrupt has the ability to apply for an early discharge, he or she will bear the burden of justifying why an early discharge is merited.”).

19

Taiwan46 and most recently in Russia,47 the unpaid debts of the bankrupt are

extinguished upon the conclusion of the bankruptcy process. In Scotland,

the bankrupt receives an automatic discharge three years after filing a

bankruptcy petition, unless the trustee or a creditor files a timely objection

to discharge.48 Lastly, beginning in 1997, petitioners in the Netherlands

became entitled for the first time to an automatic discharge of their debts at

the end of a repayment period generally lasting three years.49

While some countries have clearly banished the traditional anti-debtor

sentiments from their bankruptcy law, it seems equally clear that many

countries still retain a bankruptcy regime that either does not recognize any

646 See BANKRUPTCY LAW, (English ed.) Chapter III, Section 6, Article 149 (Taiwan) (stating "[i]f the creditors in bankruptcy have received repayment in accordance with the reconciliation or bankruptcy procedure, their claims for those portions which have not yet been repaid shall be deemed extinguished [unless the bankrupt has been sentenced for the commission of fraudulent bankruptcy].").

7 47 See Tom Cumming, Bankruptcy Law Reform in Russia, 4 PARKER SCH. J.E. EUR. L. 379, 391 (1999) (reporting that in 1998, Russian enacted the Federal Law on Insolvency. The law provides that “[o]nce the proceeds realized from the sale of the debtor’s property are distributed in accordance with these priorities, the citizen ceases to have any further liability. However, the debtor continues to be liable in respect of claims for harm to life or health, claims for support payments, and other claims of a personal nature not repaid pursuant to the distribution to the creditors or declared by other debtor.”).

848 See Bill McBryde, The Scottish Experience of Bankruptcy, in INSOLVENCY LAW: THEORY & PRACTICE 117, 124 (Harry Rajak, ed., 1993). See also W.M. GLOAG & R. CANDLISH HENDERSON, INTRODUCTION TO THE LAW OF SCOTLAND 889-90 (A.B. Wilkinson & W.A. Wilson eds., 9th ed. 1987).

949 See E-mail from Nick Huls, Erasmus University Rotterdam, to the author (Sep. 25, 2001) (on file with author).

20

of the debtors' interests or is largely intolerant and punitive towards them.

III. THE REASONS FOR GLOBAL DISPARITIES IN THE FRESH START POLICY

A. HISTORICAL ROOTS

Various reasons may account for the disparate global formulation of

the fresh start policy in personal bankruptcy. The current design of the

personal bankruptcy regime in a number of countries may reflect nothing

more than the continuing influence of the bankruptcy laws of the former

colonial power in that country. For example, the personal bankruptcy laws

in India, Pakistan, Kenya, Uganda, and Israel can be traced to, and resemble

to a large extent, the personal bankruptcy laws implanted during the period

when the British government had control over these countries. Importantly,

the central feature of the fresh start policy in the personal bankruptcy

system in all these countries is the judicial discretion used in granting debt

forgiveness to individuals.50 Judicial discretion was also the central feature

of the bankruptcy system imposed on those countries during the British

colonial rule.51

In contrast, the lack of any discharge feature in the Chilean

bankruptcy legislation, and the preclusion of non-merchants from

bankruptcy relief in various other Central and South American countries, can

0 50 See supra notes 9, 18, 19 & 20.

1 51 See Rafael Efrat, The Evolution of the Fresh start Policy in Israeli Bankruptcy Law, 32 VAND. J. TRANSNAT’L L. 49, 62-63 (1999); MACNEIL, supra note 19, at xiv.

21

be traced to the Spanish colonial power and specifically to the Spanish

Commercial Code of 1829, which was largely hostile towards the

bankrupts.52

B. DEREGULATION OF THE CREDIT MARKET

One hypothesis accounting for the apparent trend during the past

twenty years to liberalize the fresh start policy in bankruptcy among many

countries may be the deregulation of their consumer credit market. A

government’s decision to deregulate consumer credit results in increased

competition in consumer lending. This heightened competition naturally

leads to enhanced affordability of consumer credit and ultimately produces

greater access to consumer credit. In turn, this wider access may generate

increased financial vulnerability as individuals undertake excessive debt.

This increased financial vulnerability of many consumers has plausibly

prompted the legislators in a number of countries to revise their existing

personal bankruptcy laws to accommodate the increased need by

individuals of financial relief from over-indebtedness.

Corresponding to the deregulation of its financial markets in the

1980s,53 Australia dramatically liberalized its bankruptcy law by introducing

252 See David C. Cook, Prospects for a North American Bankruptcy Agreement, 2 S.W. J.L. & TRADE AM. 81, 99 (1995) (tracing Mexico bankruptcy regime to its colonial parent); Sandoval, supra note 8, at 575 & 576-77 (tracing the Chilean bankruptcy law to the bankruptcy law in effect during the Spanish colonial rule).

353 See Hirokatsu Asano, Financial Deregulation and Stability of Money

22

the automatic discharge provision into its bankruptcy system in 1980.54

Similarly, the recent reform and liberalization of the fresh start policy in

personal bankruptcy in Scandanvia and Western Europe has followed a

marked deregulation of the consumer credit market. For example, Finland

deregulated its consumer credit market in the middle of the 1980s and

liberalization of its fresh start policy in bankruptcy soon followed in 1993.55

Norwegian legislators introduced the concept of debt forgiveness in their

bankruptcy laws in the early 1990s following the deregulation of Norway’s

credit markets in the mid 1980s.56 Following deregulation of the Dutch

Demand: The Australian Case, 38 AUSTL. ECON. PAPERS 407, 407 (1999) (“Australia deregulated its financial sector in the 1980’s. . . . The main changes in the banking policy were (i) the removal of ceilings on interest rates offered by trading and saving banks on deposits in 1980, (ii) the abolition of quantitative lending guidelines for trading banks on deposits in 1982, (iii) the lowering of requirements for saving banks to invest in liquid assets in 1982. . . .”); Stephen Bell, Open-economy Central Banking: Explaining Australia’s Commitment to Central Bank Independence, 36, AUSTL. J. POL. SCI. 459, 465 (2001) (noting that the autonomy exercised by the Australian’s Reserve Bank has significantly increased in the 1980s due to the deregulation of the Australian financial market).

454 See supra note 43.

55 See supra note 12 (describing the liberalization of the Finnish bankruptcy system in 1993) and Thomas Wilhelmsson, Unemployment, Debt and the Legal Principle of ‘Social Force Majeure’ in Finland, in BANKING FOR PEOPLE- SOCIAL BANKING & NEW POVERTY CONSUMER DEBTS AND UNEMPLOYMENT IN EUROPE- NATIONAL REPORTS, supra note 34, at 411, 413 (“The Finnish credit market was strictly regulated by the central bank . . . until the middle of the 1980s. . . . During the last five years the credit market has, however, been almost totally deregulated.”).

656 See ORGANIZATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT, OECD ECONOMIC SURVEYS: NORWAY, 53 (1992)(tracing the crisis of the Norwegian banking sector to the “over-expansion of credit in the mid- 1980s when domestic financial markets were liberalized.”). See also supra note

23

consumer credit market in the 1980s, the Netherlands introduced the

concept of discharge in its bankruptcy regime in 1997.57 Similarly, the

deregulation of the consumer credit market in the United Kingdom in the

early 1980s has resulted in a massive increase in consumer debt, prompting

a dramatic liberalization of the British fresh start policy in 1986.58 Finally,

following the deregulation of the French banking system in the 1980s,

France experienced substantial rise of consumer overindebtedness.59 To

11(describing the launching of discretionary discharge regime in the Norwegian bankruptcy in 1992).

757 See supra note 49 and THE ECONOMIST INTELLIGENCE UNIT, COUNTRY FINANCE NETHERLANDS 7 (July 2000) (“The Dutch market has always been relatively open, and the bulk of financial deregulation took place in the 1980s.”).

858 The deregulation in Britain began in earnest in 1982. See Pat Conaty, Credit, Debt and Financial Control in Great Britain, in BANKING FOR PEOPLE: SOCIAL BANKING AND NEW POVERTY CONSUMER DEBTS AND UNEMPLOYMENT IN EUROPE - NATIONAL REPORTS, supra note 34, at 71, 81(stating that in 1982, Britain “lifted all lending controls which previously restricted considerably the supply of consumer credit.”). The deregulation of the consumer credit market in Britain has triggered a significant increase in consumer debt. See Jeremy Mitchell, Credit Cards, New Technology and Consumer Debt, in BANKING FOR PEOPLE- SOCIAL BANKING & NEW POVERTY CONSUMER DEBTS AND UNEMPLOYMENT IN EUROPE- NATIONAL REPORTS, supra note 34, at 99, 99 (“In recent years there has been a sharp rise in the indebtedness of UK consumers . . . . These figures show that, in money terms, total consumer indebtedness has more than doubled in the four years to end- 1988, with housing debt (that is, mortgage) rising slightly faster than personal debt. Taking price increases into account, both forms of debt have more than doubled in real terms since 1980.”). The increased overindebtendess in Britain in the 1980s prompted in part a reform of the bankruptcy laws in 1986. See supra note 36 (describing the introduction of the automatic discharge provision in Britain in 1986).

959 See Janet Ford et al., The Social Costs of Europe- General Report on Consumer Debts in Europe, in BANKING FOR PEOPLE: SOCIAL BANKING AND NEW POVERTY CONSUMER DEBTS AND UNEMPLOYMENT IN EUROPE- NATIONAL REPORTS, supra note 34, at 315, 318 (“Following the expansion of credit in the 70s and 80s

24

relieve the financial hardships faced by an increased number of individuals

in France, the French legislators adopted a debt forgiveness provision in

their civil code.60

Conversely, in countries from the Middle East, Africa and Eastern

Europe where consumption is primarily based on the cash system and where

consumer credit is highly regulated, legislators found no need to liberalize

the bankruptcy system and have opted to retain limited, if any, financial

relief to individuals. For example, prior to the enactment of the new

bankruptcy law in Russia in 1998, individuals were precluded from

bankruptcy protection. At that time, “the lack of a system allowing

individuals to restructure or alleviate personal debt [was] not a concern

because individuals in Russia continue[d] to operate on a cash economy.”61

Similarly, the regulated consumer credit market existing in Hungary makes

[in Western Europe] there is evidence from many countries to indicate that personal indebtedness is a significant problem, and that there has probably been a growth in the number of individuals who are over-indebted and so not meeting their credit commitments. . . . For example, . . . [i]n France, there are currently 200,000 overidebted households.”). See also Thomas d. Lancaster, Deregulating the French Banking System, in PRIVATIZATION AND DEREGULATION IN GLOBAL PERSPECTIVE, 374 (Dennis J. Gayle and Jonathan N. Goodrich eds., 1990) (tracing the history of deregulation of the French banking industry).

060 See supra note 16 (describing the incorporation of a debt-forgiveness feature in the French Civil Code in 1989).

161 Steve Campbell, Comment, Brother, Can You Spare a Ruble? The Development of Bankruptcy Legislation in the New Russia, 10 BANKR. DEV. J. 343, 374 (1994).

25

bankruptcy-related debt relief for individuals less apparent.62 While the

Italian government has recently embarked in earnest on deregulation of the

financial credit market, its traditional tight control over it may explain in

part its conservative fresh start policy in bankruptcy.63 Lastly, the firm grip

of the governments in China and Saudi Arabia over the credit industry has

resulted in individuals having little access to excess debt.64 This limited

exposure to financial vulnerability explains in part the lack of financial relief

afforded to individuals in the bankruptcy regimes of these two countries.65

262 See THE ECONOMIST INTELLIGENCE UNIT, COUNTRY FINANCE HUNGARY 7 (Feb. 2000)(“the penetration of banking services, particularly beyond the most basic of corporate and retail deposit instruments, remain extremely shallow. Few small or medium-sized businesses have taken out even traditional loans. Only 25% of Hungarians hold a credit or debit card. Some sub-sectors, like home mortgage banking, barely exist at all.”); Metzger & Bufford, supra note 4, at 154 (“there is currently no significant consumer credit system in Hungary and thus no apparent need for a system for personal bankruptcy.”).

363 See supra note 6 (describing the punitive nature of the bankruptcy regime in Italy and the limited financial relief it offers); and THE ECONOMIST INTELLIGENCE UNIT, COUNTRY FINANCE ITALY 7 (Sept. 1999) (“The role central and local governments have historically played in [Italian] banking has put a brake on consolidation, as they have been reluctant to give up this source of patronage. This is now changing.”).

464 See ADNAN M. ABDEEN & DALE N. SHOOK, THE SAUDI FINANCIAL SYSTEM IN THE CONTEXT OF WESTERN AND ISLAMIC FINANCE 38-39 (1984)(illustrating the highly regulated banking environment in Saudi Arabia); Baizhu Chen et al., An Overview of China’s Financial Markets: Progress, Problems and Prospects in Financial Market Reform in CHINA, PROGRESS, PROBLEMS AND PROSPECTS 1, 11(Baizhu Chen et al., eds., 2000) (describing the lingering elements of the planned economy in China,, including a highly regulated banking industry).

565 See supra notes 3 & 5 (describing the absence of debt relief in bankruptcy for individuals in China and Saudi Arabia).

26

In addition to prompting liberalization of the fresh start policy in

bankruptcy, countries that have deregulated their consumer credit market

have also experienced a substantial increase in personal bankruptcy filings.

Following the deregulation of the consumer credit market in New Zealand in

1986, the number of bankruptcies in New Zealand rose by fifty percent.66

The United States also experienced a similar increase in personal

bankruptcy filings following its deregulation of the consumer credit market

in 1978.67 Britain and Scotland have similarly reported a substantial

increase in personal bankruptcy filings following the deregulation of their

66 See Paul Heath, Consumer Bankruptcies: A New Zealand Perspective, 37 OSGOODE HALL L. J. 427, 429 & 439 (1999); Telfer, supra note 45, at 7 (describing the massive credit deregulation in New Zealand beginning in the mid 1980s).

767 See Jagdeep S. Bhandari & Lawrence A. Weiss, The Increasing Bankruptcy Filing Rate An Historical Analysis, 67 AM. BANKR. L.J. 1, 2 (1993) (“Our evidence indicates that the increase in the number of bankruptcy filings [in the U.S.] is primarily due to the increased level of debt as a percentage of income. . . .”); Paul C. Bishop, A Time Series Model of the U.S. Bankruptcy Rate, 98-01 BANK TRENDS 1, 6 (2001) (“The estimation results suggest that there is a strong relationship between consumer debt service burden and the bankruptcy rate.”); Diane Ellis, The Effect of Consumer Interest Rate Deregulation on Credit Card Volumes, Charge-offs, and the Personal Bankruptcy Rate, 98-5 BANK TRENDS 1 (1998) (this study by the Federal Deposit Insurance Corporation demonstrates the close statistical connection between the abolition of usury laws (i.e., consumer credit market deregulation), the large increase in consumer credit, and the dramatic rise in consumer bankruptcies); The Increase in Personal Bankruptcy and the Crisis in Consumer Credit: Hearing Before the Subcomm. On Admin. Oversight and the Courts of the Senate Comm. On the Judiciary, 105th Cong. 39 (1997) (statement of Kim J. Kowalewski, Chief, Financial and General Macroeconomic Analysis Unit, Macroeconomic Analysis Division, CBO) (noting that a rise in consumer bankruptcies in the U.S. “during periods of economic expansion is not really surprising” since household debt also increases during economic expansion).

27

consumer credit markets.68 Lastly, Australian researchers found a strong

association between the rate of personal bankruptcies and the extent of

deregulation in the consumer credit market in Australia.69

Interestingly, even in those countries that have recently dramatically

liberalized the fresh start policy in personal bankruptcy, legislators have

insisted on preserving the punitive features traditionally associated with

bankruptcy. In the past, bankruptcy has been viewed almost as part of the

criminal justice system in most of the world. Bankrupts were subjected to

draconian treatment, including relinquishment of the consortium of a

spouse, imprisonment, exile, enslavement, mutilation of the debtor’s body

parts, and death.70

868 See TERESA A. SULLIVAN, ELIZABETH WARREN & JAY LAWRENCE WESTBROOK, THE FRAGILE MIDDLE CLASS: AMERICANS IN DEBT 259 (2000) [Hereinafter “THE FRAGILE MIDDLE CLASS”] (reporting that corresponding to the dramatic increase in consumer debt in England and Wales, the consumer insolvency rate in England and Wales had increased by nearly 600 percent between 1980 and 1997). The dramatic rise in consumer debt in England beginning in the 1980s followed massive deregulation of the consumer credit market in 1982. See Pat Conaty, Credit, Debt and Financial Control in Great Britain, in BANKING FOR PEOPLE: SOCIAL BANKING AND NEW POVERTY CONSUMER DEBTS AND UNEMPLOYMENT IN EUROPE - NATIONAL REPORTS, supra note 34, at 71, 81 (stating that in 1982, Britain “lifted all lending controls which previously restricted considerably the supply of consumer credit.”).

969 See Rosalind Mason, Consumer Bankruptcies: An Australian Perspective, 37 OSGOODE HALL L.J. 449, 458 (1999).

070 See 2 WILLIAM BLACKSTONE, COMMENTARIES ON THE LAWS OF ENGLAND 472 (1765-1769) (“[Under Roman law], creditors might cut the debtor’s body into pieces, and each of them take his proportionate share . . . .”); Jan. H. Dalhuisen, Historical Development of Bankruptcy Remedies, in EUROPEAN BANKRUPTCY LAWS 3 (I. Arnold Ross, ed., 1974) (prior to the early bankruptcy laws, insolvent debtors would either be “killed, made a slave, imprisoned or exiled.”); Charles J. Tabb, The History of the Bankruptcy Laws in the United

28

Although these draconian practices have been largely abandoned, a

number of countries that have recently expanded debt relief in bankruptcy

have nonetheless retained, and in some cases have recently added,

numerous punitive features to the bankruptcy laws. For example, in 1996,

the Israeli legislature liberalized the fresh start policy in bankruptcy.

However, it also retained and added various provisions to its statutes aimed

at penalizing individuals pursuing bankruptcy, such as those prohibiting the

debtor from using credit cards, owning any interest in a corporate entity, or

maintaining a checking account.71 Also, in New Zealand, despite its

automatic discharge policy in bankruptcy, a bankrupt is still subject to a

number of restrictions such as a prohibition from being a member of

Parliament, a mayor or council member of a city, a juror, a director of a

company, a real estate agent or an auctioneer.72 Similar limitations are

imposed on petitioners in Australia, Canada and England despite the broad

debt relief available in these countries.73

States, 3 AM. BANKR. INST. L. REV. 5, 7 (1995) (“History’s annals are replete with tales of draconian treatment of debtors. Punishments inflicted upon debtors included forfeiture of all property, relinquishment of the consortium of a spouse, imprisonment, and death. In Rome, creditors were apparently authorized to carve up the body of the debtor. . . .”). For more on the Roman practices toward insolvent debtors, see J.A.C. THOMAS, TEXTBOOK OF ROMAN LAW 109 & 121-22 (1976).

171 See Efrat, supra note 51, at 112-13.

272 See O’KEEFE & FARRANDS, supra note 45, at 567.

373 See Mason, supra note 69, at 466 n. 85 (indicating that petitioners in Australia “must not manage a corporation without the leave of court. . . or

29

C. WELFARE STATE

Another hypothesis for explaining the global disparities in the scope of

the fresh start policy among nations is the difference in the availability of

social welfare. The weaker the social safety net a particular country

provides to its citizens, the more likely it is that individuals will resort to

borrowing to obtain services otherwise provided by the government, such as

education, medical benefits, and housing. Also, a government’s decision to

provide limited financial welfare benefits results in a diminished safety net

for individuals. This restricted safety net inevitably leads to greater

individual financial vulnerability arising from job layoffs, medical bills, or

family dissolution.

The limited social safety net afforded to Americans may have plausibly

contributed to the increased financial vulnerability of individuals and the

corresponding adoption of broad financial relief in bankruptcy.74 Similarly,

the relatively liberal debt

forgiveness available in New Zealand seems to directly correspond to the

diminished welfare offered to New Zealanders beginning in the early 1990s,

act as principals of businesses in certain professional areas such as solicitors or real estate agents.”); see supra note 42 (describing the penalties imposed on petitioners in Canada); see supra note 39 and accompanying text (describing the penalties imposed on petitioners in England).

474 See THE FRAGILE MIDDLE CLASS, supra note 68, at 259; John Clarke and Frances F. Piven, United States: An American Welfare State?, in INTERNATIONAL SOCIAL POLICY WELFARE REGIMES IN THE DEVELOPED WORLD, 26, 32-44 (Pete Alcock and Gary Craig eds., 2001)(describing reductions in the welfare state in the U.S. beginning in the 1980s).

30

which has led to an increase in financial vulnerability as manifested through

the increase in personal

insolvencies in New Zealand.75 Australia provides another illustration of the

interrelationship between welfare state and financial relief in bankruptcy.

Australia dedicates a relatively small percentage of gross domestic income

to social welfare

expenditures.76 The relatively marginal safety net offered to it citizens

coincides with the expansive debt relief made available in Australian

bankruptcy to individuals.77

Recently, cuts in the welfare state preceded a liberalization of the

fresh start policy in a number of countries. For example, gradual reduction

in the Netherlands’

welfare state beginning in the early 1980s78 was followed by the introduction

of the automatic discharge provision to the Dutch bankruptcy regime in

575 See Judith A. Davey, New Zealand: The Myth of Egalitarianism, in INTERNATIONAL SOCIAL POLICY WELFARE REGIMES IN THE DEVELOPED WORLD, supra note 74, at 85, 89 (describing the sweeping cuts in welfare benefits passed by the New Zealand National Party in 1991); Heath, supra note 66, at 439 & 445 (describing the reduction of the welfare state in New Zealand and the corresponding increase in personal bankruptcies during the 1990s).

676 See Lois Bryson, Australia: The Transformation of the Wage-Earners’ Welfare State, in INTERNATIONAL SOCIAL POLICY WELFARE REGIMES IN THE DEVELOPED WORLD, supra note 74, at 64.

77 See supra note 43 and accompanying text.

878 See Piet K. Keizer, Targeting Strategies in the Netherlands: Demand Management and Cost Restraint, in TARGETING SOCIAL BENEFITS: INTERNATIONAL PERSPECTIVES AND TRENDS, 39 (Neil Gilbert, ed., 2001).

31

1997.79 Similarly, a retrenchment in the welfare state in England during the

early 1980s was followed by the adoption in 1986 of a bankruptcy provision

automatically forgiving most debtors their pre-petition debts after three

years under bankruptcy protection.80 Lastly, Canada’s

introduction of the automatic discharge in bankruptcy in 199281 followed

years of cut backs in Canada’s welfare state, which culminated in a

fundamental downsizing of federal welfare programs in the mid 1990s.82

In contrast, in socialist oriented governments, such as Scandinavian

countries, or in centrally planned economies such as China and Mongolia,

there seems to be less need for broader financial relief as part of the

personal bankruptcy regimes. People living in such countries enjoy broad

welfare financial support such as full employment or generous

unemployment benefits, universal healthcare, subsidized higher education

and

979 See supra note 49 and accompanying text.

080 See supra note 36 and accompanying text and Pete Alcock and Gary Craig, The United Kingdom: Rolling Back the Welfare State?, in INTERNATIONAL SOCIAL POLICY WELFARE REGIMES IN THE DEVELOPED WORLD, supra note 74, at 124, 133 (describing the Thatcher governments initiatives to reduce welfare in the United Kingdom beginning in early in 1980s).

181 See Jacob S. Ziegel, Canada’s Phased-In Bankruptcy Law Reform, 70 AM. BANKR. L.J. 383, 401 (1996) (tracing the introduction of the automatic discharge provision to the Canadian bankruptcy law in 1992).

282 See Ernie S. Lightman and Graham Riches, Canada: One Step Forward, Two Steps Back?, in INTERNATIONAL SOCIAL POLICY WELFARE REGIMES IN THE DEVELOPED WORLD, supra note 74, at 45, 56-58 (tracing the process of social welfare cut backs from the early 1970s to the mid 1990s).

32

public housing.83 Hence, individuals there find less of a need to finance

basic necessities such as medicine, education and housing and therefore

have lower exposure to over indebtedness. Also, to the extent people living

in these economic systems become financially vulnerable, they may resort

to the broad governmental safety net that provides them with an all-

important financial cushion, making bankruptcy relief significantly less

important.84 Hence, most of these welfare prone states have opted not to

incorporate expansive debt relief features such as automatic debt

forgiveness provisions into their bankruptcy regimes and instead have

formulated bankruptcy regimes with either little relief or relief that is based

on judicial discretion.85

D. DISPOSITION TOWARDS ENTREPRENEURSHIP

The final hypothesis accounting for the global disparities in

bankruptcy-related relief is the governments’ differing disposition towards

entrepreneurship. Scholars have uniformly pointed to the incentives a

broad fresh start policy provides to entrepreneurs. A broad fresh start policy

encourages individuals to take risks in starting a new business venture.86 A

383 See STEVEN PINCH, WORLDS OF WELFARE: UNDERSTANDING THE CHANGING GEOGRAPHIES OF SOCIAL WELFARE PROVISION 15 (1997) (describing the expansive nature of welfare provided by Scandinavian countries).

484 See THE FRAGILE MIDDLE CLASS, supra note 68, at 257-59.

585 See supra notes 3, 10, 11, 12 & 13 and accompanying text.

686 See Charles G. Hallinan, The “Fresh Start” Policy in Consumer Bankruptcy: A Historical Inventory and an Interpretive Theory, 21 U. RICH. L. REV. 49, 64 (1986) (describing that the primary objective of the fresh start

33

fresh start policy protects entrepreneurs from the potentially devastating

consequences of unlimited liability that they may sustain in the event their

sole-proprietorship business venture fails. This added safeguard provides

the entrepreneur an important incentive to start a new business venture.87

Hence, to the extent a government is interested in fostering an

environment conducive to entrepreneurship, it would recognize the need to

incorporate provisions in its bankruptcy system that promote a broad fresh

start policy. The bedrock of the economy in the United States is private

entrepreneurship.88 Correspondingly, its liberal bankruptcy laws include

provisions which provide incentives for individuals to take entrepreneurial

risks. Similarly, Canada’s firm support and placement of high value on

policy was to encourage the undertaking of business risks); Robert A. Hillman, Contract Excuse and Bankruptcy, 43 STAN. L. REV. 99, 125 (1990) (“Bankruptcy discharge, we also believe, encourages beneficial, albeit risky, business activity by merchants and manufacturers.”); Michelle J. White, Bankruptcy and Small Business, REGULATION, Summer 2001, at 19-20 (“All of the figures, taken together, indicate that bankruptcy law has a strong effect on the number of people who choose self-employment. . . . Our research suggests that potential entrepreneurs are very responsive to the terms of the bankruptcy insurance.”).

787 Michelle J. White, Economic Versus Sociological Approaches to Legal Research: The Case of Bankruptcy, 25 L. & SOC’Y REV. 685, 694 (1991) (“The availability of bankruptcy is a valuable cushion for the self-employed, for if the business fails, bankruptcy can be used to discharge the firm’s debts. The availability of bankruptcy as a downside cushion thus increases the attractiveness of starting a new business.”)

88 See GLOBAL ENTREPRENEURSHIP MONITOR, 1999 EXECUTIVE REPORT 32 (1999) (finding that the U.S. has the highest start-up rate among the 11 industrialized countries studied and that the U.S. enjoys a strong infrastructure that promotes and supports the pursuit of entrepreneurial opportunities).

34

pursuit of entrepreneurship opportunities in society89 is reflected in the

Canadian bankruptcy system that affords broad financial relief to insolvent

entrepreneurs, among others.90

Other countries newly embracing entrepreneurship have recently

adopted a more liberal fresh start policy in bankruptcy partly to provide an

added incentive for individuals to undertake entrepreneurial risks. For

example, beginning in the early 1990s, Germany has actively embraced the

promotion of entrepreneurship by dramatically increasing the number of

programs providing financial support for new entrepreneurial ventures and

reducing the bureaucracy associated with start up firms.91 Concurrently, in

1997, Germany substantially revamped its bankruptcy laws incorporating

debt forgiveness provision for the first time.92 Similarly, during the 1990s,

the Finnish government undertook a number of new initiatives aimed at

increasing entrepreneurship.93 Paralleling the pro-entrepreneurship

989 See id. at 32-33.

090 See supra notes 40 and accompanying text.

191 See GLOBAL ENTREPRENEURSHIP MONITOR, supra note 88, at 5 (“Germany has an increasing number of programs designed to provide financial support for new firms, to ease the process of start-up and to encourage the participation of women. In the past decade approximately 200 innovation centers have been established providing space and other resources to start-up companies.”); id. at 37-38

292 See supra note 15.

393 See GLOBAL ENTREPRENEURSHIP MONITOR, supra note 88, at 5 (“In 1995 the Decennium of Entrepreneurship was launched in Finland. Coordinated by the Finnish Ministry of Trade and Industry, the aim was to bring together under one umbrella a host of individual initiates in three broad areas: creating an

35

campaign, the Finnish government also reformed its bankruptcy laws

introducing discharge in 1993.94 The conservative fresh start policy in the

Israeli bankruptcy law matched the anti-entrepreneurship sentiment that

traditionally prevailed in Israeli society. However, its liberal reform of the

fresh start policy in 1996 reflected the Israeli government’s emerging

support of private entrepreneurship.95 Lastly, current reform efforts to

further liberalize the bankruptcy laws in England are partly premised on

giving individuals more incentives to become entrepreneurs.96

In contrast, countries such as China and Mongolia that have

traditionally exhibited suspicion towards entrepreneurship, also failed to

include any debt relief to financially vulnerable individuals, including

financially vulnerable entrepreneurs. While these countries have recently

transitioned from a central economy into a market-based economy have

incorporated arrangement into their bankruptcy regime to deal with

entrepreneurial society, promoting entrepreneurship as a source of employment and fostering the growth of new ventures.”) (emphasis in the original).

494 See supra note 12.

595 See Rafael Efrat, The Transformation of the Israeli Bankruptcy System as a Reflection of Societal Changes, 10 J. TRANSNAT’L. L. & POL’Y 39, 46-51 (2000).

696 See E-mail from Andrew Jackson, Manager, FCE Consumer Risk Management, to William Weyandt, Director, International Consumer Risk, Ford Financial (Nov. 14, 2001) (stating that government officials in England, who are in support of the pending liberalization attempts, have argued that “that the proposal is designed to stimulate entrepreneurial activities and to keep funds flowing in to the economy.”).

36

business failure, such arrangements have been limited to formerly state

owned enterprise or large scale international companies. These recent

bankruptcy laws targeting formerly state owned enterprises or large scale

international companies reflect these governments’ desire to attract large

scale international investment by large companies, and their indifference

toward small-scale local entrepreneurship.97

IV. PERSONAL BANKRUPTCY RATES AND THE REASONS FOR THE DISPARITIES

Globally, the fresh start policy formulation is diverse and distinct to

the particular country’s economic, historical, social and political

infrastructure. Not only do countries have divergent formulation of the fresh

start policy, but they also have remarkably different per capita utilization

level of the personal bankruptcy system. While not comprehensive in scope,

some initial data suggests that even among countries with relatively

liberalized fresh start policy in bankruptcy, there is a substantial disparity in

the levels of bankruptcy filings.

797 See Bohanon & Plouffe Jr., supra note 3, at 7 (suggesting that the exclusive focus of Mongolia’s bankruptcy law on commercial entities “is understandable in that the primary purpose of the Mongolian Bankruptcy Law, at least at this point in the development of the Mongolian free market economy, is to address the macro-economic issues of attracting more international investment in Mongolia and to provide economic stability.”); Max Boisot, Unfinished Business: Obstacles to Entrepreneurship in the Reform of State-Owned Enterprises in China and Vietnam, in ENTREPRENEURSHIP IN A GLOBAL CONTEXT 37 (Sue Birley & Ian C. MacMillan eds., 1997).

37

In the United States there were approximately five bankruptcy

filings per 1,000 citizens in 1997.98 In the same year, Canada had three

personal bankruptcy filings for every 1,000 individuals.99 In 1997, Australia

had a bankruptcy filing rate of approximately 1.7 per 1,000 individuals,100

while New Zealand and Japan reported .7 bankruptcy filings per 1,000

individuals for the same year.101 Also in 1997, England and Wales

898 See THE FRAGILE MIDDLE CLASS, supra note 68, at 259 (reporting that in 1997 the personal bankruptcy filing rate per 1,000 citizens was 5.1 in the U.S.); Diane Ellis, The Influence of Legal Factors on Personal Bankruptcy Filings, 98-03 BANK TRENDS 1(1998) (“The personal bankruptcy rate has risen consistently from under 1.0 per thousand population annually in the early 1970s to over 4.7 per thousand for the year ending June 30, 1997.”)

99 See Iain Ramsay, Market Imperatives, Professional Discretion and the Role of Intermediaries in Consumer Bankruptcy: A Comparative Study of the Canadian Trustee in Bankruptcy, 74 AM. BANKR. L.J. 399, 399 (2000) (“Canadian consumer insolvencies increased from 19,752 in 1985 to 90,034 in 1997. This latter figure represented a rate of 3 per 1,000 persons.”).

0100 This figure was calculated by dividing the number of personal bankruptcy filings in Australia in 1997-1998 by the total number of individuals residing in Australia in 1996 (the closest census year) that were 15 years old or older. The number of personal bankruptcy filings in 1997-1998 was 24,408. See Mason, supra note 69, at 457. The number of individuals that were 15 years old or older in 1996 was 14,040,303. See AUSTRALIAN BUREAU STATISTICS, available at http://www.abs.gov.au/. The Australian’s consumer bankruptcy filing rate per 1,000 households is 1.1. See also Mason & Duns, supra note 43, at 2 (reporting a national personal bankruptcy rate of 1.1 per 1,000 head of households).

101 In New Zealand, the personal bankruptcy rate in 1997 “had reached 70 per 100,000 of the population.” See Heath, supra note 66, at 430. Similarly, in Japan, in 1997, the personal bankruptcy rate was .735 per 1,000 individuals. This figure was calculated by dividing the number of personal bankruptcy filings in Japan in 1997 by the total number of individuals residing in Japan in 1995 (the closest census year) that were 20 years old or older. The number of personal bankruptcy filings in 1997 was 71,299. See

38

experienced as few as .47 bankruptcy filings per 1,000 individuals.102 Lastly,

in 1997, Israel reported approximately .16 bankruptcy filings per 1,000

people.103 In other words, in 1997, Israel had sixteen personal bankruptcies

for every forty-seven English and Welsh, seventy New Zealanders and

Japanese, 170 Australian, 300 Canadian, and 510 American personal

bankruptcies.

The striking disparities in the personal bankruptcy filing rates may be

attributed to differences in relief that is available in the various bankruptcy

systems. The relatively high bankruptcy filing rate in the United States may

be partly due to the expansive debt relief available to Americans.104 In

Report on Bankruptcy Law and the Trend of Consumer Bankruptcy in Japan from Takashi Yoshida, Primus Financial Services, Japan, to Elizabeth Bobenmoyer, Senior Attorney, Ford Financial 1 (Nov. 27, 2001) (compiling data from the Yearly Report of Justice Statistics by the Supreme Court in Japan) (on file with author). The number of individuals that were 20 years old or older in 1995 was 96,998,554. See STATISTICS BUREAU & STATISTICS CENTER OF JAPAN MINISTRY OF PUBLIC MANAGEMENT, HOME AFFAIRS, POSTS AND TELECOMMUNICATIONS, 1995 POPULATION CENSUS, 1 & table 2 (1995), available at http://www.stat.go.jp/english/index.htm.

2102 See THE FRAGILE MIDDLE CLASS, supra note 68, at 259 (reporting that in 1997 the personal bankruptcy filing rate per 1,000 citizens was .47 in England and Wales).

3103 This figure was calculated by dividing the number of personal bankruptcy filings in Israel in 1997 by the total number of individuals residing in Israel in 1997 that were 20 years old or older. The number of personal bankruptcy filings in 1997 was 587. See Computerized Printouts from the Official Receiver of the Central, Jerusalem and Southern districts (July-Sept. 1998) (on file with author). The number of individuals that were 20 years old or older in 1997 was 3,617,000. See ISRAEL CENTRAL BUREAU OF STATISTICS, STATISTICAL ABSTRACT OF ISRAEL 2000, Figure 2.19 (2000).

4104 See Vern McKinley, Ballooning Bankruptcies: Issuing Blame for the Explosive Growth, 20 REGULATION 33, 38 (1997) (“A clear culprit of the rise in

39

contrast, the relatively low bankruptcy filing rate in Japan and Israel may be

the product of grudging financial relief offered to Japanese and Israelis

under their respective bankruptcy regime.105

Also, the disparities may be a product of the varying degrees of safety

net provided by the various countries. The rather expansive Israeli

statutory based social welfare state reduces the number of individuals who

are in dire financial distress.106 Similarly, the relatively extensive benefits

bankruptcies is the Bankruptcy Reform Act of 1978 that moved the Code in a decidedly pro-debtor direction as part of the ‘consumer’ movement of that period.”). But see Ian Domowitz & Elie Tamer, Two Hundred Years of Bankruptcy: A Tale of Legislation and Economic Fluctuations 1-5 & 37 (May 1997) (unpublished manuscript, on file with the Department of Economics at Northwestern University) (authors determined that from 1939 to 1994 bankruptcy legislation favorable to debtors has had little effect on bankruptcy filings and that consumers do not take advantage of more favorable bankruptcy laws); David A. Moss & Gibbs A. Johnson, The Rise of Consumer Bankruptcy: Evolution, Revolution, or Both? 73 AM. BANKR. L.J. 311, 330 (1999)(“this choice of 1978 as the great divide . . . is rather misleading. Because real consumer credit increased substantially over the entire forty-year period from 1958 to 1998, the number of filings almost certainly would have increased even in the absence of any change in law.”).

5105 See Efrat, supra note 1, at 578-600 (identifying some of the laws that make it difficult for bankruptcy petitioners in Israel to obtain a financial fresh start); Report on Bankruptcy Law and the Trend of Consumer Bankruptcy in Japan from Takashi Yoshida, Primus Financial Services, Japan, to Elizabeth Bobenmoyer, Senior Attorney, Ford Financial 1 (Nov. 27, 2001); E-mail from Takashi Yoshida, Risk Management Department, Primus Financial Services, Japan, to author (Feb. 24, 2002 (on file with author) (indicating that discharge is not automatic in Japan. Instead, petitioners have to affirmatively apply for such relief. Judges would grant such relief if they satisfied with the petitioner’s reason for bankruptcy and are convinced of his inability to make future payments).

6106 See ABRAHAM DORON & RALPH M. KRAMER, MEDINAT HA’REVACHA BE’YISRAEL [SOCIAL WELFARE IN ISRAEL] 1 (1992).

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that still characterize the United Kingdom’s welfare system despite the

cutbacks in the 1980s, provide critical economic cushion to its citizens that

insulate them to an extent from financial distress.107 Likewise, the Japanese

low per capita bankruptcy rate could be attributed partly to its welfare state.

While the structure of the welfare system in Japan is primarily non-statutory,

it nonetheless offers broad safety net to individuals through the various

private provisions of welfare.108 In contrast, the United States, Canadian and

Australian limited welfare regime exposes more individuals to financial

trouble.109 Indeed, a number of recent empirical studies have documented

the relationship between welfare state and levels of bankruptcy filings.110

7107 See Alcock & Craig, supra note 80, at 125(“at the end of the twentieth century state welfare provision [in the United Kingdom] remains significant and widespread, despite the cutbacks of the 1980s. . . . Despite the shifts in both policy and ideology, however, there are significant continuities within British welfare policy, especially when compared with policy developments in other countries throughout the developed world. Britain provided an interesting case of the Anglo-Saxon welfare model . . . which contrasts starkly with the more residual approaches found in the USA, Canada and Australia. . . .”).

8108 See PINCH, supra note 83, at 17-19 (explaining how family together with large employers substitute for the state in providing welfare in Japan).

9109 See id. at 16 (“The US is widely acknowledged to be a world leader in industrial, financial and technological spheres as well as being a key innovator of democratic institutions. However, as a welfare state, the US has often been seen as underdeveloped and limited in scope.”); Lois Bryson, Australia: The Transformation of the Wage-Earners’ Welfare State, in INTERNATIONAL SOCIAL POLICY WELFARE REGIMES IN THE DEVELOPED WORLD, supra note 74, at 64; Ernie S. Lightman and Graham Riches, Canada: One Step Forward, Two Steps Back?, in INTERNATIONAL SOCIAL POLICY WELFARE REGIMES IN THE DEVELOPED WORLD, supra note 74, at 60-61 (describing the decline in welfare offered to Canadians).

0110 See THE FRAGILE MIDDLE CLASS, supra note 68, at 3 (“Without universal

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Also, the higher filing rate in the United States, Canada and Australia

may be the result of increased availability of consumer credit as well as

laxer consumer credit standards employed by financial institutions.111 In

contrast, financial institutions in Japan and Israel are reportedly employing

health insurance to protect every family [in the U.S.] from the financial ravages of illness and without higher levels of unemployment compensation to cushion the effects of layoff, each day, . . . some families will fall over the financial edge.”); Ian Domowitz & Robert L. Sartain, Determinants of the Consumer Bankruptcy Decision, 54 J. FIN. 403, 413 (1999)(finding that in the U.S. health problems leading to “medical debt ha[d] the greatest single impact of any household condition in raising the conditional probability of bankruptcy . . . . Households with high medical debt exhibit a filing probability greater than 28 times that of the baseline.”); Ian Domowitz, Statement before the Senate Judiciary Subcomm. on Administrative Oversight and the Courts, (Apr. 11, 1992) (arguing that uninsured medical debt is the largest single contributor at the margin to bankruptcy filings in the U.S.); David Gross & Nicholas S. Souleles, An Empirical Analysis of Personal Bankruptcy and Delinquency 21 (1998) (unpublished manuscript on file with author) (finding that lack of health insurance was associated with more default among credit card holders in the U.S.). One aggregate study suggested that there is a link between lack of medical insurance or underinsurance and the propensity to commence bankruptcy petition in the U.S. See SMR RESEARCH CORP., THE PERSONAL BANKRUPTCY CRISIS, 1997: DEMOGRAPHICS CAUSES, IMPLICATIONS AND SOLUTIONS 94-95 (1997) (comparing bankruptcy filing rates with health insurance coverage rates at the state level, the author identified medical debt as a “central problem in bankruptcy,” noting that the bankruptcy filing rate was lower than the national average in states where at least 92% of the population had health insurance.”).

111 Studies relating to the U.S. personal bankruptcy filings have correlated the increased availability of consumer credit with the rise in personal bankruptcy filings over the last several decades. See Moss & Johnson, supra note 104, at 327(“Figures 1 and 2 clearly demonstrate that there was a strong and enduring correlation between non-business filings and real consumer credit [in the U.S.] through the mid 1980s. The primary cause of rising consumer bankruptcies across this period appears to have been steadily rising consumer debt.”). Similarly, personal bankruptcy filings in Canada increased dramatically following the increased availability of

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stringent consumer credit standards.112

Furthermore, the differing bankruptcy filing rates could plausibly be

the product of the diverging personal saving rates. The Japanese household

saving rate as a percentage of disposable income of approximately twelve

percent and the average household savings rate of gross disposable income consumer credit in Canada beginning in the late 1960s. See Ellis, supra note 67, at 9 (“personal bankruptcies grew sharply and immediately [in Canada] after the VISA association entered Canada [in 1968]. From 1966 to 1976, the personal bankruptcy rate in Canada grew 340 percent.”). Lastly, one study in Australia suggested a link between increased availability of consumer credit between 1980 and 1996 and the rise in personal bankruptcies during that same period. See AUSTRALIAN COMPETITION AND CONSUMER COMMISSION, UNDUE HARASSMENT AND COERCION IN DEBT COLLECTION 7 (1999). For a discussion of the lack of stringent consumer credit standards used in the U.S. and Canadian financial sectors, see THE FRAGILE MIDDLE CLASS, supra note 68, at 136 (“Few forms of debt can be so easily acquired [in the U.S.] as credit card debt. There are no serious talks with a bank president of careful reviews of outstanding debts and assets before undertaking a credit card obligation”); id. at 137 (“The practices show that credit card companies increasingly fail to ask for vital information, such as employment and income, even at the start of the credit relationship.”); Lawrence M. Ausubel, Credit Card Defaults, Credit Card Profits, and Bankruptcy, 71 AM. BANKR. L.J. 249, 251 (1997) (“The profit margins of credit card issuers substantially increased beginning in 1982, as a result of the functional deregulation of credit card interest rates coupled with prevalent consumer behavior. This has created incentives for card issues to relax their credit standards, in turn leading to a secular increase in the rate of credit card defaults.”); Susan L. DeJarnatt, Once is Not Enough: Preserving Consumers’ Rights to Bankruptcy Protection, 74 IND. L.J. 455, 499 (1999) (“In large part, the credit industry, which has chosen to increase profits by extending credit in large amounts to people with weak credit histories, wants to be saved from itself. Increased bankruptcy filings are part of the cost of these trends in lending.”); Ellis, supra note 67, at 7 (“Another group that benefited from the expansion of credit was high-risk borrowers, or individuals with poor credit ratings regardless of their income level. The ability to generate more income allowed lenders to lend to individuals who were further down the spectrum of credit quality because lenders could be compensated for a higher rate of credit losses.”); Gross & Souleles, supra note 110, at 21 (unpublished manuscript on file with author) (finding that “[t]he risk controls [employed

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in Israel of twenty-five percent provide added financial cushion to Japanese

and Israelis.113 In contrast, the relatively higher per capita personal

bankruptcy rate in Australia, Canada and the United States may be a

function of their marginal household saving rate. In Australia, the household

saving rate has fallen from a respectable twelve percent in the mid 1980s,

by credit card companies in the U.S.] are highly significant in predicting default. Accounts with lower credit scores were much more likely to default.”); Ramsay, supra note 99, at 451-52 (“A common topic for criticism among several trustees were the lending practices of credit card companies which, in the views of trustees, were often responsible for the creation of overcommitted debtors.”); Bernard R. Trujilo, The Wisconsin Exemption Clause Debate of 1846: An Historical Perspective on the Regulation of Debt, 1998 WISC. L. REV. 747, 749 (“One likely reason for the explosion in consumer bankruptcies is the expolsion in the extension of credit [in the U.S.] to ‘subprime’ borrowers; that is, people whose low income, youth, prior credit history or other factors make it more likely that they would default on the loan. The number of subprime loans (mainly in the form of credit cards issued to high-risk borrowers) increased as lenders realized that charging higher interest rates created a handsome profit even after writing off the loans that went bad.”); Elizabeth Warren, The Bankruptcy Crisis, 73 IND. L. J. 1079, 1083 (1998)(“When the cards are highly profitable, credit card issuers have a strong incentive to distribute them to marginal borrowers and to borrowers already loaded with debts, which increases both the issuer’s profits and its loan defaults.”); but see Todd J. Zywicki, Economics of Credit Cards 118-122 (2000) (unpublished manuscript on file with author) (contesting the proposition that increasing bankruptcies and credit card defaults in the U.S. in recent years have been driven by greater extension of credit to high risk borrowers).

2112 Financial institutions in Israel have reportedly engaged in stringent consumer lending standards. While it is relatively easy for a wage earner to obtain a credit card or an overdraft protection plan in Israel, banks generally extend credit in an amount no greater than the applicant’s monthly salary. Banks generally insist that the credit be repaid by the end of the month, generally through a direct deposit of the account holder’s monthly salary. As a result, banks continuously monitor the account balance and the account holder’s employment status. See generally GIL BRITZMAN, EMZAEI TASHLUM: KARTESEI HIUV VE’KARTESEI ASHRAI [PAYMENT SYSTEMS: DEBIT CARDS AND CREDIT CARDS] 34-36(1998). See also AHARON BARAK & AMIR FRIDMAN, KARISE HIUV: HEBETIM MISPHATIYIM VE’MA’ASIYIM SHEL KARTISE ASHRAI VE’BANK [CHARGE

44

to less than one half of one percent in 1999.114 Similarly, the household

saving rate in Canada has fallen from the high in 1981-1982 of eighteen

percent of disposal income to less than two percent in 1998.115 Likewise,

the household saving rate in the United States has reached into the

negative territory for the first time in 1998.116

CARDS: LEGAL AND PRACTICAL EXAMINATION OF CREDIT CARDS AND BANK] 36 (1997) (describing the banks’ policy of closely monitoring credit card use by their customers). Since banks generally insist on getting repaid in full at the end of the month, most of the banks’ earnings in Israel arising out non-mortgage consumer credit activities are derived from fees paid by merchants and annual membership fees as opposed to interest. See id. 15-17. The tighter credit standards and higher scrutiny undertaken by banks relative to non-mortgage consumer credit in Israel may partly explain the reason for the lower proportionate share of consumer credit as part of the total bad debts portfolio in the Israeli banking industry in 1999. See Ron Harris, From Imprisonment to Discharge: Setting an Agenda for Reform in Debtor-Creditor Law, 23 TEL-AVIV U. L. REV 641, 690 (2000). Similarly, Japanese banks are reportedly engaging in strict scrutiny when extending consumer credit. See E-mail from Takashi Yoshida, Risk Management Department, Primus Financial Services, Japan, to author (Feb. 28, 2002) (on file with author)(“The banks’ scrutiny [in Japan] is strict when the credit first extended. They check the applicants’ income level, job history, past credit records and so on.”).

3113 In 1989 in Japan, the average personal saving ratio as a percent of disposable income was approximately 12%. See FUMIO HAYASHI, UNDERSTANDING SAVING: EVIDENCE FROM THE UNITED STATES AND JAPAN, 308 & 336(1997). In Israel, the private savings rate between 1994 and 1998 ranged from 24% to 26% of gross private disposable income. See INTERNATIONAL MONETARY FUND, ISRAEL: SELECTED ISSUES AND STATISTICAL APPENDIX 80 (Apr. 2000).

4114 See Spendthrifts or Seekers of Profit?, AUSTL. BUSI. REV. WKLY., June, 11, 1999, at 34.

5115 See David Murrell & Anthony Myatt, Another Day Older and Deeper in Debt? Is There a Financial Crisis in Canadian Households?, 6 CAN. BUS. ECON. 50 (1998).

6116 See United States Economy, FINANCIAL TIMES, Nov. 9, 1998, at 22.

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Next, the disparate bankruptcy filing rates may be a product of

differing levels of public awareness about the availability of bankruptcy

relief. In the United States and Canada, for example, attorneys’ advertising

about bankruptcy is quite pervasive.117 Several studies in the United States

have found a relationship between increased attorneys’ bankruptcy

advertising and the recent increase in consumer bankruptcy filings.118

Further, some studies have suggested that at least a quarter of the

bankruptcy petitioners in the United States and Canada in the 1990s have

learned about the option of bankruptcy from such persistent advertising.119

In contrast, until very recently, attorney advertising in Japan and Israel has

been prohibited which, plausibly, contributed to the limited public

awareness of personal bankruptcy as a form of financial relief for

individuals.120

7117 See Jean Braucher, Lawyers & Consumer Bankruptcy: One Code Many Cultures, 67 AM. BANKR. L.J. 501, 543-45 (1993) (describing the pervasiveness of consumer bankruptcy advertising by attorneys in the U.S.); Ramsay, supra note 99, at 424 (finding that “[t]he number of pages devoted to bankruptcy trustees has increased in Canada from two in 1991 to eleven in 1999-2000.”).

8118 See Ellis, supra note 98, at 2 (“In the past two decades, at least three events have altered the legal framework at the national level and may have contributed to the long-term rise in the U.S. personal bankruptcy rate. The first event is a Supreme Court decision in 1977 that paved the way for lawyers to advertise on television.”).

9119 See VISA U.S.A. INC., 2000 LIFE AFTER BANKRUPTCY STUDY 18 (2000); Ramsay, supra note 99, at 425.

0120 See YISRAEL ITSKOVITS, BE-HEZKAT ASHEM: HAKOL AL HA-MISHPAT VEHA-MISHPACH BE’YISRAEL, [PRESUMED GUILTY] 44 & 150 (1997) (the author, a former bankruptcy petitioner and a founder of a grass roots organization for the

46

Also, differing levels of societal stigmatization of bankruptcy may be a

factor in the disparate bankruptcy filing rates. While not empirically tested,

some have attributed the rising number of bankruptcy filing rates in

Australia and the United States to the diminishing impact of bankruptcy

stigma.121 In contrast, in Japan, New Zealand, England and Israel, for

example, stigma reportedly plays an important role in deterring financially

troubled individuals from commencing bankruptcy protection.122 Similarly,

rights of insolvent individuals in Israel, suggests that individuals in Israel do not have much knowledge about the bankruptcy relief that is available for individuals in Israel). See also Harris, supra note 112, at 660 (attributing the small number of bankruptcy petitions filed in Israel partly due to lack of public knowledge about the bankruptcy option). Lack of public knowledge about the option and benefits of consumer bankruptcy in Israel and Japan may be ameliorated in the foreseeable future following the recent lifting in both Japan and Israel of the restrictions on attorneys’ advertising. See E-mail from Risk Management Department, Primus Financial Services, Japan, to author (Feb. 28, 2002 (on file with author)(stating that the prohibition of lawyers’ advertising in Japan has been removed in October, 2000). In Israel the traditional prohibition of attorneys’ advertising was removed in 2001; Attorney Bar ordinances, 2001, K.T. 6094, 629.

121 See VISA U.S.A, INC., QUALITATIVE RESEARCH: BANKRUPTCY PROCESS 19 (1997) ("The social stigma that once attached itself to bankruptcy [in the U.S.] appears to have weakened substantially, if not disappeared."); Martin Ryan, The Stigma of Bankruptcy, 7 SOCIO-LEGAL BULL. 6, 10 (1992) (based on interviews with 76 undischarged, voluntary consumer bankrupts in Australia, the author concluded that the bankrupts appear to be experiencing little stigma arising out of the bankruptcy process, although they are still feeling stigmatized); E-mail from unnamed source at Ford Financial to Elizabeth M. Bobenmoyer, Senior Attorney, Ford Financial (Nov. 27, 2001)(on file with author)(suggesting that recently stigma has begun to play a little role in deterring Australian from commencing bankruptcy protection).

2122 See e.g., Report on Bankruptcy Law and the Trend of Consumer Bankruptcy in Japan from Takashi Yoshida, Primus Financial Services, Japan, to Elizabeth Bobenmoyer, Senior Attorney, Ford Financial 1 (Nov. 27, 2001) (describing various provisions in the bankruptcy law aimed at stigmatizing

47

while no specific data is available, consumer bankruptcy filing in Thailand is

rare reportedly in part because of the adverse perception in society

associated with such proceeding.123

Furthermore, differing degrees of intra-family and community support

may have also contributed to the disparities in the bankruptcy filing rates.

For example, Japanese relatively low per capital bankruptcy filing rate may

be attributed to its society’s emphasis on group solidarity. In Japan, families

and large employers play a pivotal role in providing a certain degree of

cushion and support that reduces the risk of financial failure.124 Similarly,

the debtor such as publicly posting the name of the petitioners on the notice board in court and in a government newspaper); E-mail from Takashi Yoshida, Risk Management Department, Primus Financial Services, Japan, to author (Feb. 28, 2002) (on file with author) (“I would say that the [saving] face issue plays an important part for avoiding the bankruptcy.”); E-mail from Thomas Telfer, Professor of Law, University of Ontario Faculty of Law, Canada, to author (March 4, 2002) (on file with author) (“Bankruptcy still has somewhat of a stigma in New Zealand but it is difficult to quantify.”); Nick Huls, Overindebtedness and Overlegalization: Consumer Bankruptcy as a Field for Alternative Dispute Resolution, 20 J. CONSUMER POL’Y 143, 150 (1997) (suggesting that for most European debtors bankruptcy constitute loss of face); ITSKOVITS, supra note 120, at 43 (asserting that the main reason for the traditional restrain in Israel from resorting to bankruptcy protection is the shame associated with it); Shuchman, supra note 21, at 353 (“[In Israel], there is a stigma attached to being bankrupt. From our few interviews, . . . we infer that many debtors who might benefit from bankruptcy are deterred by the fear of shame and stigma.”).

3123 See FORD FINANCIAL RISK MANAGEMENT, BANKRUPTCY: LEGAL OVERVIEW 9 (Feb. 26, 2002) (on file with author)(contending that consumer bankruptcy filing in Thailand is not common partly because “loss of face” has had a dramatic influence in deterring many from pursuing bankruptcy filing).

4124 See PINCH, supra note 83, at 18 (“In Japan there is a strong emphasis upon group solidarity which affects all life . . . . [T]his collectivists ethic is expressed through companies rather than through statutory social services. Thus, the major corporations play an important welfare role in Japan,

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the cohesiveness and the centrality of the Israeli family unit may also partly

explain the relatively low per capita bankruptcy-filing rate there.125

Lastly, the relatively high bankruptcy rate in the United States may be

due to the relatively low access costs to the bankruptcy system. The

bankruptcy process costs American petitioners approximately $185-200 in

filing fees and between $300 and $1,800 in attorneys’ fees.126 Similarly, in

Canada, petitioners’ access to the bankruptcy relief includes a $50 filing fee,

providing housing, family allowance and social facilities for their workers. . . . In Japan, in contrast, the family, together with large employers, substitute for the state in providing welfare.”).

5125 See Howard Litwin, Support Network Type and Patterns of Help Giving and Receiving Among Older People, J. SOC. SERVICE RES. 83, 91 (1999) (“[A]lmost half the elderly respondents [in Israel] reported aiding their adult children in one way or another.”); Yochanan Peres & Ruth Katz, Stability and Centrality: The Nuclear Family in Modern Israel, 59 SOC. FORCES 687, 699-700 (1981) (“In Israel the individual feels less anonymous than his counterpart in the modern West, not only because he lives in a tiny state, but also because the tradition of respect for privacy carries much less force, and values of mutual help and responsibility are somewhat more emphasized.”); Dafna Yisrael, Women, Work, Family & Public Policy, in HUMAN RESOURCES & INDUSTRIAL RELATIONS IN ISRAEL: NEW HORIZONS 327, 328 (Arye Golberson et al. eds., 1990) (noting the centrality of family in the Israeli society).

6126 In the U.S. the filing fee is $200 for chapter 7 and $185 for chapter 13. See 28 U.S.C. § 1930(a)(1), (b). See also THE FRAGILE MIDDLE CLASS, supra note 68, at 11 (“Most people [in the U.S.] hire a lawyer to help them through the bankruptcy process. It generally costs between $750 and $1,500.”); John M. Barron & Michael E. Staten, Personal Bankruptcy: A Report on Petitioners’ Ability-to-Pay, 15 (Oct. 6, 1997) (unpublished manuscript, on file with author)(reporting that the average fee paid by represented bankruptcy petitioners to a lawyer in the U.S. was $702 in Chapter 7 and $1,139 in Chapter 13); Scott F. Norberg, Consumer Bankruptcy’s New Clothes: An Empirical Study of Discharge and Debt Collection in Chapter 13, 7 AM. BANKR. INST. L. REV. 415, 436 (1999)(finding that the average Chapter 13 bankruptcy petitioner pays between $1,200 to $1,800 in attorneys’ fees).

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$170 counseling fee, and approximately $1,500 in trustee’s fees.127 In sharp

contrast, England’s relatively low personal bankruptcy rate may be partly

associated with the high court fees for initiating bankruptcy.128 Similar to

England, the per capital bankruptcy filing rate in Israel may be relatively

lower due to the significant bankruptcy access costs that include

approximately $500 in filing fees and between $1,000 and $5,000 in

attorneys’ fees.129 Thailand’s bankruptcy regime also illustrates the

potential impact of costs on bankruptcy filing rate. While no specific data is

available, consumer bankruptcy filing in Thailand is highly uncommon in

part allegedly because of the costs associated with the process.130 Similarly,

consumer bankruptcy filing rates in Germany has been very small, even

following its recent expansion of available debt relief in bankruptcy,

7127 See Ramsay, supra note 99, at 458.

8128 See Alexander Karpf, Comparative Study of the Law of Debt Collection of Consumer Debts in England and Austria 16 (2001) (unpublished manuscript) (on file with author) (“the payment [in England] of the court fee [to initiate bankruptcy proceedings] and of the deposit for the administration costs can be insurmountable barrier for some consumers in spite of the possibility for the court to waive the former.”).

9129 See Harris, supra note 112, at 660 (attributing the small number of bankruptcy petitions filed in Israel partly due to high filing costs). In 1997, the bankruptcy-filing fee in Israel was $498 per person (1,745 NIS). See ITSKOVITS, supra note 120, at 117; Interview with Levana Bar-Oz, supra note (noting that the range of attorneys fees in personal bankruptcy cases in Israel is between $1,000 to $5,000).

0130 See FORD FINANCIAL RISK MANAGEMENT, supra note 123 at 9 (Feb. 26, 2002) (on file with author)(contending that consumer bankruptcy filing in Thailand is not common partly because of the “lengthy court process, and the cost involved do not make this option viable.”).

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primarily because of the high costs and the complex bureaucracy of its

bankruptcy system.131

V. CONCLUSION

The fresh start policy in personal bankruptcy has undergone some

significant changes around the world during the last twenty years. A

significant number of countries that traditionally had a rather conservative

debt-relief regime have recently adopted broad revisions to their bankruptcy

laws, dramatically liberalizing their fresh start policies. Countries such as

Hong Kong, England, Scotland, Germany, Austria, France, Israel and Finland

have abandoned their fixation with bankruptcy as a punitive mechanism

against a defaulting debtor, or as a creditors’ collection tool. Instead, these countries

have opted for a bankruptcy regime that is more concerned with debtor’s opportunities for a

fresh start. However, these dramatic reform undertakings were not identical in all of these

countries. This Article articulates a number of alternative theories that may account for the

disparities that have remained, including the extent of the consumer credit deregulation, the

welfare benefits afforded to individuals in a given country, and the government’s predisposition

towards entrepreneurship.

Nonetheless, while many countries have recently liberalized the fresh start policy in

bankruptcy, there seems to be an equally noteworthy trend in the opposite direction. While

131 See E-mail from Dietmar Slama, Ford Financial, Germany, to Elizabeth Bobenmoyer, Senior Attorney, Ford Financial U.S.A., (Nov. 27, 2001) (on file with author) (“The number of consumers taking advantage of the new [bankruptcy] law has been very small, the reason being that the filing of the application is combined with a lot of red tape and quite costly.”).

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strenuously resisted by groups advocating preservation of the existing liberal fresh start policy in

the United States, the ongoing and persistent proposals to reform bankruptcy law in the United

States suggests that legislators in the country that affords the broadest fresh start to financially

fragile individuals may be inclined to limit its availability and scope.132 These attempts to

reduce the scope of the debt relief available in the United States are

premised primarily on the concern of abuse. The process of expanding

traditionally conservative debt relief regimes, on the one hand, and

reducing debt relief available in the most liberalized debt-relief regime, on

the other hand, suggests that there is an overall trend of global

convergence of bankruptcy systems. This bankruptcy regime convergence

seems to parallel similar global convergence with respect to consumer credit

deregulation, welfare state, and attitude towards entrepreneurship.133

2132 See generally William C. Whitford, Changing Definitions of Fresh Start in U.S. Bankruptcy Law, 20 J. CONSUMER POL. 179 (1997) (tracing the increased limitations placed on the fresh start policy in the American bankruptcy system during the 1980s and the 1990s).

3133 Convergence in other areas of the law has been recently reported. See e.g., Lawrence M. Friedman, Borders: On the Emerging Sociology of Transnational Law, 32 STAN. J. INT’L L. 65 (1996); Michael P. Malloy, Bumper Cars: Themes of Convergence in International Regulation, 60 FORDHAM L. REV. S1 (1992); Frank S. Shyn, Note and Comment, Internationalization of the Commodities Market: Convergence of Regulatory Activity, 9 AM. U.J. INT’L L. & POL’Y 597 (1994); Wolfgang Wiegand, Reception of Amercian Law in Europe, 39 AM. J. COMP. L. 229 (1991).

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