Each day in my bankruptcy law office, at least one client will complain about the Bankruptcy Code and the effect on their daily existence. Debtors who file for bankruptcy protection often will complain that the U.S. bankruptcy code is too harsh, too tough when the debtor must limit expenses for luxury items. Bankruptcy debtors also worry about having excess equity in an asset and losing a part of that property. However, bankruptcy debtors in the United States have a much easier time during their bankruptcy than debtors in other countries and keep much more property safe from creditors. For example, while visiting South Africa recently, this author found herself waiting patiently inside a local bank. The bank had a brochure rack and on that rack was a brochure about the bank’s debt repayment plan. Unlike the debt management programs here in the United States, each creditor in South Africa is responsible for their own debt management plan with struggling debtors. Bankruptcy, a complete discharge of debts (similar to Chapter 7) is available to debtors, but the brochure strongly discouraged bankruptcy. I then wondered about the bankruptcy laws in South Africa and why it would be strongly discouraged as a option.
South Africa first adopted insolvency law in 1917. That law was very harsh to debtors. For example, a debtor owning a business must keep a statement of accounts, supported by vouchers and receipts, and books showing a daily record of all creditors, goods sold on account. From 1917 through 1936 at least, the debtor who didn’t keep good records could be sent to jail. Yes, jail for failing to keep up the books while filing bankruptcy. In 1936, a new law was passed called The Insolvency Act which provided the foundation for the South African insolvency law which exists today. Over the years, the Insolvency Act has been amended; most recently in 2005. In 2005, creditors were directed to assist in preventing bankruptcy or insolvency by the implementation of individual debt management programs for debtors. The 2005 Amendments are viewed as consumer protection amendments. Bankruptcy is truly viewed as a last resort in South Africa. The brochure seen in the bank was a result of the 2005 Act.
The South African Insolvency Act is found at Section 82 of Act 24 of 1936 and dictates that a debtor must surrender ALL THE PROPERTY he has. Yup, everything. EVERYTHING, other than bedding and clothes. The trustee there is empowered to sell all property at public auction, according to Attorney Rohan Lamprecht. The debtor does not have to appear in court or before the trustee to be examined. The attorney files a motion and instructs counsel to appear before the High Court and argue the case. The High Court has jurisdiction over insolvency cases. If the application is granted, all assets of the estate are now under the control of the Master of the High Court who appoints an insolvency practitioner to take charge of the estate and to search for further assets. Upon such appointment, ownership vests in the insolvency practitioner (also known as the Trustee) who then sells the property at auction and divides the proceeds between creditors. The creditors have the right to direct the sale under the conditions that are set by the creditors. The Insolvency Act provides that the bankruptcy shall be published in the newspaper where the debtor resides or where his business is located. Bankrupt debtors lose it all, other than bedding and clothes. That result is very different from what happens to debtors under the U.S. Bankruptcy Code.
In the United States, every state has protected some property belonging to the debtor, whether through the federal bankruptcy exemptions found at 11 USC 522 or through adoption of state-specific exemptions. Exemptions are laws that keep certain property or a certain value of property out of the bankruptcy estate. For example, Oregon debtors are allowed to exempt a long gun and a handgun. The federal exemptions, notwithstanding the 2nd Amendment, do not provide for guns, specifically. Each state decides individually whether the state will “opt out” of the federal bankruptcy exemptions or “opt in” for the exemptions to apply.
No matter how tough the laws may seem to be to the average U.S. debtor, the debtor has property left at the conclusion of the case and property is protected from creditors.