EU and US Bankruptcy Law - Essay Example

The differing techniques to the stability between rights of creditors and debtors are reflected in the connection requisite to establish bankruptcy control. In the US, the connection obligatory is very small; whereas throughout the EU it has historically been much more substantial. Yet the consequences for stakeholders of all descriptions of the jurisdictional choice made by or imposed upon a debtor are in both cases enormous. The Bankruptcy Reform Act of 1994 is the most significant change in American bankruptcy legislation since the 1978 Act according to the "Nolo website".

The 1994 Act, signed into law by President Clinton on October 22, 1994, contains provisions affecting business and personal bankruptcy laws. The 1994 act also created the National Bankruptcy Commission to continue looking into needed changes in bankruptcy law. The Amendments should expedite the administration of cases. They should also contain important revisions designed to afford consumers with more protection regarding their principal residence, collecting alimony and child support, and unscrupulous bankruptcy petition preparers.

The Bankruptcy and Abuse Prevention Act of 2003 presumes abuse based on the debtor's financial means. There is a three-prong test for an automatic presumption of abuse. If the monthly income reduced by expenses and multiplied by 60 is not less than the lesser of either the greatest of 25 percent of general unsecured claims, or $6,000 or $10,000. (Peter ,2002)For banks and credit card companies, the measure could mean millions of dollars in recovered assets. But critics worry that the broadly worded bill would punish not just deadbeat debtors, but families pushed into bankruptcy through no fault of their own.

Personal bankruptcy filings have doubled in the past decade, to more than 1.6 million cases last year. The bill now under debate would require tens of thousands of people who seek bankruptcy protection to repay at least part of what they owe and make it harder for them to wipe away their debts. Supporters say people looking for a quick fix for their financial woes have abused the bankruptcy system. Opponents say the bill will do little but increase consumers' misery without closing the bankruptcy loopholes available to corporations and wealthy debtors.

To argue for the legalization of bankruptcy contracts is implicitly to assume that bankruptcy systems exist only to increase efficiency. This is because contracts that maximize creditors' expected returns may slight the interests of other constitutuencies. Many American commentators argue that bankruptcy systems also should protect persons or entities that do not have current claims against the insolvent firm. In the literature, protected classes include workers with an interest in continued employment and local communities that benefit from the firm's continued presence.

These commentators are willing to sacrifice bankruptcy value to advance the interests of workers and communities.( Senior Mag ,2005 ) This essay's second claim, however, is that bankruptcy law should function only to facilitate the access of firms to debt capital. Bankruptcy systems cannot protect employees or communities effectively.In the debate about the goals of bankruptcy systems, we may distinguish