Canada has fairly liberal personal bankruptcy laws. One of the major tenets of Canadian bankruptcy is that an honest but unfortunate debtor deserves a fresh financial start. In the US the personal bankruptcy laws are also fairly liberal with most bankrupts getting a discharge in about 4 ½ months.
In some parts of the world personal bankruptcy is quite different as Asher Meir explains in his article on Personal Bankruptcy in Israel.
Only a very small number of people actually declare bankruptcy in Israel and, of these, most are not actually granted a discharge. The penalties for going into bankruptcy are onerous. Bankruptcy is considered a disgrace in Israel and legally disqualifies the bankrupt from many activities, including being a lawyer or managing a business.
Mr. Meir makes a number of arguments for why Israel should adopt more liberal bankruptcy laws:
1. Bankruptcy, after all, is no more than another kind of social insurance to protect households and provide a safety net against misfortune. Unemployment benefits protect against job loss, welfare protects against falling into poverty, and bankruptcy laws protect people who had an expectation of being able to pay back their loans, but due to unexpected turns of fortune are unable.
2. More even-handed bankruptcy would be good for the economy. A research study by Wei Fan and Michelle White found that locations with more lenient bankruptcy rules have higher levels of self-employed individuals, meaning that these regimes encourage enterprise. America’s liberal business bankruptcy laws are repeatedly cited as a factor in the US’ prodigious advantage over Europe in entrepreneurship.
3. Debt forgiveness is a Jewish tradition going back to Biblical laws. The bankruptcy literature is filled with parallels to the Biblical laws of erasure of debts in the seventh year and restoration of homesteads in the Jubilee year. Debt relief bills are sometimes referred to as “jubilee acts.” It is ironic and a bit of a shame that Israel, which gave the world this inspiring vision for a society with a built-in mechanism for a fresh start, has such a primitive system for realizing this vision.