Bankruptcy Around the World

Bankruptcy works differently depending on where you live in the world. Usually the general concept is about the same – it’s a way for you to clear your unsecured debts if you’re unable to repay them in full.

It even works differently in various parts of the UK.

Scotland and England

In Scotland, until recently you could only become bankrupt if your lenders took legal action against you. The rules have now been changed, however. You can petition for your own bankruptcy (like in England), but only if you have a minimum of £1,500 unsecured debt that you simply can’t afford to repay. In England, there’s no real minimum debt for bankruptcy – you just have to prove that you cannot repay your unsecured debts within a reasonable period of time any other way.

In Scotland, you’ll have to pay a £200 fee to the Accountant in Bankruptcy (AiB) when you apply for bankruptcy. In England the fee is up to £700. If your application is successful, all your unsecured debts will be frozen for a year and you’ll be legally protected against further action from your lenders. You will hand rights to your assets over to a Trustee, who may sell those assets in order to repay your lenders a fair share of what you owe.

This does mean that you are likely to lose your home if you own one (not if you’re a tenant) – but once you are discharged from bankruptcy (usually after a year) any remaining unsecured debt will be written off. In Scotland and England, bankruptcy will damage your credit rating for six years.

You can find out more about bankruptcy – and Scottish alternatives to bankruptcy – at www.dacscotland.co.uk.

USA

In America, bankruptcy has the same basic goal: to give debtors a fresh start from unmanageable unsecured debts. There are two main ‘chapters’ of bankruptcy – chapter 7 and chapter 13 – and the one your case falls under depends on your circumstances. Chapter 7 is a straightforward liquidation, in which your valuable assets will be sold to help repay your debts – a lot like English bankruptcy. Chapter 13 is more of a payment program. 

According to CNN, he average cost of applying for chapter 7 bankruptcy in America is $1,500.

Discharge from a chapter 7 bankruptcy can take just months – your assets will be divided among your lenders and remaining unsecured debt will be written off when you’re discharged. Chapter 13 bankruptcy lasts until you have finished making the required payments (normally over a three- to five-year period).

In the US, bankruptcy will remain on your credit record for ten years.

Australia

In Australia, certain assets are protected from bankruptcy – for example tools of the trade or your car (up to a certain value). You can apply for bankruptcy for any amount of unsecured debt as long as you cannot afford it – but your lenders can only petition for your bankruptcy if you owe over $5,000.

Bankruptcy in Australia usually lasts around three years, and you may be expected to make contributions to your debts during this time if you can afford to. If you manage to clear your debts during this time, your bankruptcy will be annulled.

Australian bankruptcy will stay on your credit report for seven years.

Is bankruptcy right for me?

Getting debt advice before making any decisions is a good idea, no matter what country you live in. This can alert you to any alternatives to bankruptcy your country offers, as well as the specific details of bankruptcy where you live.

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