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Every year in the United States of America over 1.5 million individuals file a form of personal bankruptcy.
In America there are two common forms of personal bankruptcy, called Chapter 7 and Chapter 11, named after the sections of the U.S. Bankruptcy Code that created these forms of bankruptcy.
Chapter 7 bankruptcy is also known as straight bankruptcy or liquidation bankruptcy, and is similar to a personal bankruptcy in Canada. In a Chapter 7 bankruptcy the debtor loses all of their non-exempt assets, and the proceeds are distributed to the creditors. Unlike in Canada, a bankruptcy lawyer will work directly with debtors in the process. In Canada the bankruptcy process is administered by bankruptcy trustees who are not lawyers (they generally have an accounting background).
Chapter 11 bankruptcy is also known as a Wage Earner Plan, and is similar to a consumer proposal in Canada. In a Chapter 11 Wage Earner Plan the debtor makes payments over a period time, generally up to five years, and those payments are distributed to the creditors.
In both countries the bankruptcy process exists to allow debtors relief from their debts.
