WEBVTT 00:00:00.000 --> 00:00:02.740 Welcome back to the Deep Dive. Today we are plunging 00:00:02.740 --> 00:00:05.360 headfirst into a subject that manages, well, 00:00:05.459 --> 00:00:07.519 the greatest financial failures in the world. 00:00:07.660 --> 00:00:11.000 Everything from global shipping empires all the 00:00:11.000 --> 00:00:13.839 way down to a single household just struggling 00:00:13.839 --> 00:00:16.449 with medical bills. We are talking about... bankruptcy. 00:00:16.710 --> 00:00:18.769 And right off the bat, we have to clarify what 00:00:18.769 --> 00:00:21.289 it actually is. We do, because people use it 00:00:21.289 --> 00:00:23.989 all the time as a synonym for insolvency. And 00:00:23.989 --> 00:00:26.170 they are absolutely not the same thing. That's 00:00:26.170 --> 00:00:28.390 the critical starting point for this whole discussion, 00:00:28.589 --> 00:00:30.969 isn't it? It is. Insolvency is just a state of 00:00:30.969 --> 00:00:33.009 being. You know, you can't pay your debts. You're 00:00:33.009 --> 00:00:35.390 broke. Your company's underwater. It's an economic 00:00:35.390 --> 00:00:38.350 condition. Exactly. But bankruptcy is the legal 00:00:38.350 --> 00:00:41.369 status. It's a specific court -ordered process 00:00:41.369 --> 00:00:44.369 that allows an insolvent person or a company 00:00:44.369 --> 00:00:47.179 to seek relief. It's the formal mechanism for 00:00:47.179 --> 00:00:49.560 dealing with being broke. OK, a legal tool, not 00:00:49.560 --> 00:00:52.259 just a financial state. And to get started, the 00:00:52.259 --> 00:00:55.759 name itself has this surprisingly dramatic, almost 00:00:55.759 --> 00:00:58.700 physical origin story. It really does. It sets 00:00:58.700 --> 00:01:00.740 the tone perfectly for the brutal history of 00:01:00.740 --> 00:01:03.759 debt. The word comes from Italian. Banca rotta. 00:01:03.820 --> 00:01:08.359 Banca rotta. Literally, a broken bank or a broken 00:01:08.359 --> 00:01:11.219 bench. And the story behind that is incredible. 00:01:11.340 --> 00:01:13.500 It supposedly comes from Renaissance Italy. That's 00:01:13.500 --> 00:01:15.939 the tradition, yeah. In places like Venice and 00:01:15.939 --> 00:01:18.400 Florence, the early bankers and money changers 00:01:18.400 --> 00:01:21.659 would work from a simple bench, a bunca, in the 00:01:21.659 --> 00:01:24.459 public square. And the story goes, even if it's 00:01:24.459 --> 00:01:26.840 a bit of a legend, that if a banker defaulted 00:01:26.840 --> 00:01:29.239 and couldn't pay his debts, his bench would be 00:01:29.239 --> 00:01:33.480 physically smashed. Rota. Broken. Wow. So it 00:01:33.480 --> 00:01:36.519 wasn't just a notice in the paper. It was a public 00:01:36.519 --> 00:01:39.680 physical act of destruction. A total public shaming. 00:01:39.700 --> 00:01:42.120 It was a visual metaphor that told everyone your 00:01:42.120 --> 00:01:44.659 financial life was over. And that really sets 00:01:44.659 --> 00:01:46.840 the stage for our mission today. Right. We're 00:01:46.840 --> 00:01:48.739 going to track that journey from, well, from 00:01:48.739 --> 00:01:50.879 that kind of brutal punishment. All the way to 00:01:50.879 --> 00:01:52.900 the highly structured rehabilitation -focused 00:01:52.900 --> 00:01:55.780 laws we have today. We'll look at global differences, 00:01:56.019 --> 00:01:58.859 the complex U .S. chapters, and that very fine 00:01:58.859 --> 00:02:01.599 line between a smart legal strategy and outright 00:02:01.599 --> 00:02:04.299 criminal fraud. And that's the tension that runs 00:02:04.299 --> 00:02:06.680 through all of this, isn't it? How do you balance 00:02:06.680 --> 00:02:09.000 the rights of the person who is owed money with 00:02:09.000 --> 00:02:11.199 the need to give an honest debtor a fresh start? 00:02:11.520 --> 00:02:14.960 To really get why rehabilitation is such a big 00:02:14.960 --> 00:02:17.699 deal now, we have to look at what people were 00:02:17.699 --> 00:02:20.620 being rehabilitated from. So let's go way back 00:02:20.620 --> 00:02:24.360 thousands of years to ancient Greece. In ancient 00:02:24.360 --> 00:02:26.740 Greece, failing to pay your debt wasn't just 00:02:26.740 --> 00:02:28.819 about losing assets. It was about losing your 00:02:28.819 --> 00:02:31.129 freedom. What do you mean? Well. There was no 00:02:31.129 --> 00:02:33.689 concept of a fresh start. If you couldn't pay, 00:02:33.949 --> 00:02:36.250 your creditor had the legal right to seize you, 00:02:36.330 --> 00:02:38.270 your wife, your children, even your servants, 00:02:38.409 --> 00:02:41.050 and force you into debt slavery. So you repaid 00:02:41.050 --> 00:02:43.990 your debt with years of your life, with forced 00:02:43.990 --> 00:02:46.289 labor. Exactly. Your body became the collateral. 00:02:46.509 --> 00:02:49.449 But even then, there was some early sort of legal 00:02:49.449 --> 00:02:52.219 limits. Detections. In a way. In many Greek city 00:02:52.219 --> 00:02:54.360 -states, debt slavery was often capped maybe 00:02:54.360 --> 00:02:57.000 at five years. And these debt slaves had certain 00:02:57.000 --> 00:02:59.520 protections for their life and limb that, you 00:02:59.520 --> 00:03:01.860 know, a regular slave captured in war might not 00:03:01.860 --> 00:03:03.840 have had. But I remember reading there was a 00:03:03.840 --> 00:03:06.900 really dark loophole to that. There was. While 00:03:06.900 --> 00:03:09.460 you, the debtor, might be protected for five 00:03:09.460 --> 00:03:12.199 years, your servants, or even your own children 00:03:12.199 --> 00:03:14.180 who were seized with you, could sometimes be 00:03:14.180 --> 00:03:16.500 kept by the creditor for much longer. For a lifetime. 00:03:16.939 --> 00:03:19.300 Sometimes, yes. Under much harsher conditions. 00:03:20.000 --> 00:03:21.860 It was a way to get around the limits on the 00:03:21.860 --> 00:03:25.199 original debt. That's just appalling. But there 00:03:25.199 --> 00:03:27.740 was one huge exception to this rule, a place 00:03:27.740 --> 00:03:30.500 that did things differently. Athens. Absolutely. 00:03:30.699 --> 00:03:32.599 Yeah. This is a key moment in legal history. 00:03:32.939 --> 00:03:35.759 Under the laws of Solon, back in the early 6th 00:03:35.759 --> 00:03:39.340 century BC, enslavement for debt was forbidden. 00:03:39.560 --> 00:03:42.680 What did they call it? The Sicephia. It means 00:03:42.680 --> 00:03:44.699 the shaking off of burdens. It was revolutionary. 00:03:45.199 --> 00:03:47.060 Let's just pause on that. What principle did 00:03:47.060 --> 00:03:49.340 that establish by saying you can't enslave a 00:03:49.340 --> 00:03:52.000 citizen for debt? He established that a citizen's 00:03:52.000 --> 00:03:54.159 personhood was more important than a creditor's 00:03:54.159 --> 00:03:56.699 property rights. Your body was off limits as 00:03:56.699 --> 00:03:58.919 collateral. Which had a huge practical effect. 00:03:59.259 --> 00:04:01.060 It meant that most of the slaves in Athens were 00:04:01.060 --> 00:04:03.400 foreigners because their own citizens were legally 00:04:03.400 --> 00:04:06.099 protected from that fate. A huge shift. It's 00:04:06.099 --> 00:04:08.360 an early sign that society might be better off 00:04:08.360 --> 00:04:11.139 not... completely destroying a citizen over a 00:04:11.139 --> 00:04:14.060 debt. But that severity didn't just disappear. 00:04:14.780 --> 00:04:17.699 Let's jump forward. The first formal English 00:04:17.699 --> 00:04:20.339 law doesn't show up for a long time. Right. Not 00:04:20.339 --> 00:04:24.160 until 1542, under Henry VIII, the statute of 00:04:24.160 --> 00:04:27.420 bankruptcy. And even then, it was very punitive. 00:04:27.439 --> 00:04:29.720 It was aimed more at punishing fraudulent merchants 00:04:29.720 --> 00:04:33.060 than offering any kind of relief. So still creditor 00:04:33.060 --> 00:04:35.720 -focused. Very much so. But if you think that's 00:04:35.720 --> 00:04:37.850 tough... You have to look at the laws of Genghis 00:04:37.850 --> 00:04:40.649 Khan, the Yasa. Oh, I've heard about this. It 00:04:40.649 --> 00:04:42.629 makes the English law look incredibly gentle. 00:04:42.790 --> 00:04:46.550 The Yasa had a provision that it mandated the 00:04:46.550 --> 00:04:48.410 death penalty for anyone who went bankrupt three 00:04:48.410 --> 00:04:51.410 times. Death. For failing financially three times. 00:04:51.410 --> 00:04:53.730 Death. It tells you that financial failure wasn't 00:04:53.730 --> 00:04:56.569 seen as a misfortune. It was seen as a deep societal 00:04:56.569 --> 00:04:59.189 weakness, a crime against the market order. The 00:04:59.189 --> 00:05:02.000 goal was deterrence through elimination. No second 00:05:02.000 --> 00:05:04.220 chances there. Let alone a third. And it's not 00:05:04.220 --> 00:05:07.480 just individuals. Entire nations can fail. Sovereign 00:05:07.480 --> 00:05:09.660 defaults. Right. And this is fascinating because 00:05:09.660 --> 00:05:11.920 there's no global bankruptcy court for countries. 00:05:12.439 --> 00:05:14.759 But it has happened over and over again throughout 00:05:14.759 --> 00:05:17.100 history. And a prime example comes from Spain's 00:05:17.100 --> 00:05:20.139 golden age. Philip II of Spain. He was one of 00:05:20.139 --> 00:05:22.379 the most powerful rulers on Earth, with an empire 00:05:22.379 --> 00:05:24.500 flowing with silver and gold from the Americas. 00:05:24.800 --> 00:05:27.540 And yet. He declared state bankruptcy four times. 00:05:28.110 --> 00:05:34.009 In 1557, 1560, 1575, and 1596. How is that even 00:05:34.009 --> 00:05:35.990 possible with all that wealth? How do you go 00:05:35.990 --> 00:05:40.209 bankrupt four times? War. Constant, incredibly 00:05:40.209 --> 00:05:43.029 expensive wars against the Ottomans and the Netherlands, 00:05:43.170 --> 00:05:46.449 the Spanish Armada. The cost of empire just outstripped 00:05:46.449 --> 00:05:48.689 his income. When the interest on his loans got 00:05:48.689 --> 00:05:50.829 too high, he just stopped paying. Which must 00:05:50.829 --> 00:05:52.730 have frozen credit markets across all of Europe. 00:05:52.930 --> 00:05:55.199 Every single time. It just goes to show that 00:05:55.199 --> 00:05:57.680 no one is immune to overextension. And while 00:05:57.680 --> 00:05:59.720 a state doesn't get liquidated like a company. 00:05:59.879 --> 00:06:02.139 The consequences can still bring it down. Exactly. 00:06:02.240 --> 00:06:05.100 The economic chaos can be the final straw. A 00:06:05.100 --> 00:06:07.600 great example is the Sui dynasty in China. After 00:06:07.600 --> 00:06:10.839 their war in 614 A .D. Yes. The Guguryeo -Sui 00:06:10.839 --> 00:06:14.389 War. It was a disaster. The cost was so immense 00:06:14.389 --> 00:06:17.290 it led to hyperinflation, forced labor, famine. 00:06:17.550 --> 00:06:20.029 So the financial strain was the root cause. It 00:06:20.029 --> 00:06:21.550 completely destroyed the system's legitimacy. 00:06:22.029 --> 00:06:25.069 The dynasty collapsed within four years. So even 00:06:25.069 --> 00:06:27.670 without a formal court ruling, financial failure 00:06:27.670 --> 00:06:30.149 can absolutely be the catalyst for state collapse. 00:06:30.250 --> 00:06:33.389 That history is just, it's brutal. From debt 00:06:33.389 --> 00:06:36.649 slavery to execution. So the modern era really 00:06:36.649 --> 00:06:39.629 is a complete philosophical reversal. It's a 00:06:39.629 --> 00:06:43.069 massive shift. The main goal of modern insolvency 00:06:43.069 --> 00:06:45.490 law, especially for businesses, is no longer 00:06:45.490 --> 00:06:48.009 about punishment or elimination. It's about preserving 00:06:48.009 --> 00:06:51.290 value. Precisely. There was this huge economic 00:06:51.290 --> 00:06:53.850 realization that just liquidating an insolvent 00:06:53.850 --> 00:06:56.269 company... often destroys more value. You lose 00:06:56.269 --> 00:06:58.250 jobs, you lose production, intellectual property 00:06:58.250 --> 00:07:00.470 than if you try to save it. So the law's goal 00:07:00.470 --> 00:07:03.750 changed from punishing the failure to enabling 00:07:03.750 --> 00:07:06.769 survival. Right. The goal is now to remodel the 00:07:06.769 --> 00:07:08.829 company's financial and organizational structure. 00:07:09.029 --> 00:07:10.990 You ought to rehabilitate it to help it continue. 00:07:11.550 --> 00:07:13.810 Liquidation is the last resort, not the first 00:07:13.810 --> 00:07:16.470 step. And that philosophy gets even more important 00:07:16.470 --> 00:07:18.370 when we talk about, you know, private households. 00:07:18.589 --> 00:07:21.430 It's about human recovery. Exactly. For individuals, 00:07:21.709 --> 00:07:24.509 it's not just a get out of debt free card. It's 00:07:24.509 --> 00:07:27.149 about figuring out the underlying problem. It 00:07:27.149 --> 00:07:31.029 was a medical emergency, a job loss, poor financial 00:07:31.029 --> 00:07:33.589 literacy. And then trying to fix it so it doesn't 00:07:33.589 --> 00:07:35.790 happen again. Right. And that requires integrated 00:07:35.790 --> 00:07:38.490 support. You see this a lot in the European context. 00:07:38.790 --> 00:07:40.990 What does that support look like? It means things 00:07:40.990 --> 00:07:44.689 like mandatory debt advice, supervised periods 00:07:44.689 --> 00:07:47.269 where your spending is monitored, financial education 00:07:47.269 --> 00:07:50.769 classes, and even social help to try and stabilize 00:07:50.769 --> 00:07:53.290 your income. So it's a very active process. You 00:07:53.290 --> 00:07:55.490 have to participate in your own recovery. You 00:07:55.490 --> 00:07:58.459 do. Most EU member states require you to make 00:07:58.459 --> 00:08:01.019 some partial payments and follow behavioral rules 00:08:01.019 --> 00:08:03.660 to get your debts discharged. But there's a huge 00:08:03.660 --> 00:08:06.000 range. The UK is probably the closest to the 00:08:06.000 --> 00:08:08.800 US model, which is more focused on a clean slate. 00:08:09.040 --> 00:08:10.920 And what's on the other end of that spectrum? 00:08:11.120 --> 00:08:14.199 A country that's much more restrictive. Spain 00:08:14.199 --> 00:08:17.319 is a great example. Their 2003 law, the like 00:08:17.319 --> 00:08:19.759 and concurs, allows for debt settlement plans. 00:08:20.000 --> 00:08:22.160 You can get more time to pay. maybe up to five 00:08:22.160 --> 00:08:24.720 years, or you can get your total debt reduced 00:08:24.720 --> 00:08:27.220 by up to half. Up to half. So you could go through 00:08:27.220 --> 00:08:30.279 this whole process and still owe 50 % of what 00:08:30.279 --> 00:08:33.519 you originally did. Yes. And crucially, the Spanish 00:08:33.519 --> 00:08:37.320 law does not foresee a full debt discharge. That 00:08:37.320 --> 00:08:39.980 remaining balance doesn't just go away. You still 00:08:39.980 --> 00:08:43.840 owe it. Wow. So it's about making the debt manageable, 00:08:43.899 --> 00:08:46.919 not eliminating it. Exactly. It keeps the debtor 00:08:46.919 --> 00:08:49.269 accountable. but it means they could be carrying 00:08:49.269 --> 00:08:51.509 that debt for life. Speaking of debt you can 00:08:51.509 --> 00:08:54.409 carry for life, we have to talk about the elephant 00:08:54.409 --> 00:08:56.470 in the American room. Student loans. Student 00:08:56.470 --> 00:08:59.450 loans. They are notoriously almost impossible 00:08:59.450 --> 00:09:01.950 to get rid of in bankruptcy in the U .S. They 00:09:01.950 --> 00:09:04.230 are. It really goes against that whole fresh 00:09:04.230 --> 00:09:06.470 start philosophy. The reason they're carved out 00:09:06.470 --> 00:09:09.090 is that there was this fear initially that new 00:09:09.090 --> 00:09:10.970 graduates like doctors and lawyers would just 00:09:10.970 --> 00:09:13.330 file for bankruptcy right away and wipe out all 00:09:13.330 --> 00:09:15.029 their loans. Okay, I can see the logic there. 00:09:15.370 --> 00:09:17.649 But the law has gotten so tight over the years 00:09:17.649 --> 00:09:21.289 that now the hurdle is incredibly high. It's 00:09:21.289 --> 00:09:23.049 defined by something called the Brunner test. 00:09:23.429 --> 00:09:25.690 And this isn't a simple math problem. You have 00:09:25.690 --> 00:09:29.009 to prove three separate, very difficult things 00:09:29.009 --> 00:09:31.789 to the court. That's right. All three. And the 00:09:31.789 --> 00:09:34.070 first one is just proving you're in dire financial 00:09:34.070 --> 00:09:36.950 straits. So factor one is that if you had to 00:09:36.950 --> 00:09:39.830 repay the loan, you couldn't maintain a minimal 00:09:39.830 --> 00:09:42.019 standard of living. Right. Not that it would 00:09:42.019 --> 00:09:44.700 be hard, but that you literally could not afford 00:09:44.700 --> 00:09:48.500 basic food, shelter and health care. The very 00:09:48.500 --> 00:09:50.720 high bar. OK, so that's the first hurdle. What's 00:09:50.720 --> 00:09:52.940 the second? The second is that you have to prove 00:09:52.940 --> 00:09:56.080 this situation is likely to be permanent, that 00:09:56.080 --> 00:09:58.139 your financial problems will probably continue 00:09:58.139 --> 00:10:00.980 for most or all of the repayment period. So you 00:10:00.980 --> 00:10:02.940 basically have to prove to a judge that your 00:10:02.940 --> 00:10:06.279 future is hopeless. It sounds bleak, but that's 00:10:06.279 --> 00:10:08.509 essentially it. You have to show something like 00:10:08.509 --> 00:10:10.830 a permanent disability or a situation that will 00:10:10.830 --> 00:10:13.730 never let you earn enough. A temporary job loss 00:10:13.730 --> 00:10:16.649 usually isn't enough. You're arguing you'll never 00:10:16.649 --> 00:10:19.669 recover financially. Yes. And then the third 00:10:19.669 --> 00:10:22.049 factor is about your past actions. You have to 00:10:22.049 --> 00:10:24.690 show you've made a good faith effort to repay 00:10:24.690 --> 00:10:27.899 the loans before filing. You do. You can't have 00:10:27.899 --> 00:10:30.039 just ignored the debt for 10 years. You need 00:10:30.039 --> 00:10:32.159 to show you tried to work with the lender, maybe 00:10:32.159 --> 00:10:34.559 get on a payment plan, ask for deferment. And 00:10:34.559 --> 00:10:36.899 even if you managed to prove all three of those 00:10:36.899 --> 00:10:40.080 things, destitution, permanence and good faith. 00:10:40.980 --> 00:10:43.080 The court might still only grant you a partial 00:10:43.080 --> 00:10:45.159 discharge. It's incredible. It just shows how 00:10:45.159 --> 00:10:48.039 protected that specific type of debt is in the 00:10:48.039 --> 00:10:51.590 system. All right. So we've gone from the legal 00:10:51.590 --> 00:10:54.450 difficulties of the Brenner test to, well, outright 00:10:54.450 --> 00:10:56.750 criminality, because this whole system depends 00:10:56.750 --> 00:10:59.289 on people being honest. And where there's a chance 00:10:59.289 --> 00:11:01.669 for a fresh start, there's always an opportunity 00:11:01.669 --> 00:11:04.690 for fraud. Bankruptcy fraud is a major white 00:11:04.690 --> 00:11:07.230 collar crime. At its core, it's about deceit, 00:11:07.230 --> 00:11:09.690 right? lying to the court or to your creditors. 00:11:09.769 --> 00:11:11.970 Usually by hiding assets to stop them from being 00:11:11.970 --> 00:11:14.809 seized and sold. But it can also be filing false 00:11:14.809 --> 00:11:17.129 information, filing in multiple states at once, 00:11:17.230 --> 00:11:20.429 or even bribery. And because this is all happening 00:11:20.429 --> 00:11:23.470 in a federal court system in the U .S., any lie 00:11:23.470 --> 00:11:26.250 can be prosecuted as a federal crime. Exactly. 00:11:26.490 --> 00:11:29.590 It's perjury. The U .S. statutes focus on whether 00:11:29.590 --> 00:11:32.570 the person knowingly tried to deceive the system. 00:11:32.879 --> 00:11:34.740 And the most common way people fall into this, 00:11:34.840 --> 00:11:37.240 what you call the concealment trap, is by not 00:11:37.240 --> 00:11:40.360 listing assets they think are worthless. This 00:11:40.360 --> 00:11:42.580 is such a critical mistake. People think, oh, 00:11:42.600 --> 00:11:45.200 my old car doesn't run or this collection of 00:11:45.200 --> 00:11:47.700 stamps is just junk. I don't need to put it on 00:11:47.700 --> 00:11:50.080 the forms. And that's a huge problem. A catastrophic 00:11:50.080 --> 00:11:53.240 one. Because you are legally required to disclose 00:11:53.240 --> 00:11:56.379 everything. It's not your job to decide what 00:11:56.379 --> 00:11:58.710 an asset is worth. Whose job is it? It's the 00:11:58.710 --> 00:12:00.990 job of the trustee, the person the court appoints 00:12:00.990 --> 00:12:03.730 to represent your creditors. They get to decide 00:12:03.730 --> 00:12:06.850 if that broken -down car has valuable parts or 00:12:06.850 --> 00:12:08.909 if one of those stamps is a rare collectible. 00:12:09.429 --> 00:12:12.409 By leaving it off, you've committed fraud. So 00:12:12.409 --> 00:12:14.330 walk me through what happens. Let's say someone 00:12:14.330 --> 00:12:16.950 hides a valuable painting, gets their debts discharged, 00:12:17.169 --> 00:12:19.190 and then a year later, a creditor finds out about 00:12:19.190 --> 00:12:22.149 it. The trap snaps shut. A creditor, or the U 00:12:22.149 --> 00:12:24.470 .S. trustee, can ask the court to reopen the 00:12:24.470 --> 00:12:27.120 case. The trustee will seize that painting and 00:12:27.120 --> 00:12:29.519 sell it. And the debt. The discharge of debt 00:12:29.519 --> 00:12:32.399 the person received can be revoked. So all that 00:12:32.399 --> 00:12:35.120 debt comes flooding back. And on top of that, 00:12:35.279 --> 00:12:37.940 they can now face federal prosecution for fraud 00:12:37.940 --> 00:12:41.220 and perjury. The lesson is disclose everything. 00:12:41.440 --> 00:12:44.100 Absolutely everything. The system demands total 00:12:44.100 --> 00:12:46.899 transparency. Now, that's criminal fraud. But 00:12:46.899 --> 00:12:49.019 we need to make a clear distinction between that 00:12:49.019 --> 00:12:51.879 and something called strategic bankruptcy. Which 00:12:51.879 --> 00:12:54.980 is completely legal. Strategic bankruptcy isn't 00:12:54.980 --> 00:12:58.399 about hiding things or lying. It's about using 00:12:58.399 --> 00:13:01.120 the bankruptcy laws to your best advantage. So 00:13:01.120 --> 00:13:03.279 you're genuinely in financial trouble, but you're 00:13:03.279 --> 00:13:05.659 timing your filing or using a specific chapter 00:13:05.659 --> 00:13:09.029 to get the best possible outcome. Exactly. An 00:13:09.029 --> 00:13:11.350 example of fraud would be, you know, moving all 00:13:11.350 --> 00:13:13.330 your cash to an offshore account a month before 00:13:13.330 --> 00:13:15.730 you file. Right. An example of strategy would 00:13:15.730 --> 00:13:18.330 be a large corporation filing for Chapter 11, 00:13:18.450 --> 00:13:21.149 specifically so they can legally get out of some 00:13:21.149 --> 00:13:23.990 very expensive long -term contracts or leases 00:13:23.990 --> 00:13:26.529 that are sinking the business. It's aggressive, 00:13:26.590 --> 00:13:29.029 but it's playing by the rules. It's using the 00:13:29.029 --> 00:13:31.490 law as it was written. It's a tool, not a crime. 00:13:31.929 --> 00:13:34.210 Now, as we look around the world, one of the 00:13:34.210 --> 00:13:36.490 first things you notice is that the word bankruptcy 00:13:36.490 --> 00:13:39.289 itself can mean different things, can't it? It 00:13:39.289 --> 00:13:41.169 can. And the biggest difference is whether you're 00:13:41.169 --> 00:13:43.570 talking about a person or a company. Okay, so 00:13:43.570 --> 00:13:46.690 in places like the UK, Australia, Ireland, and 00:13:46.690 --> 00:13:49.490 Finland. The term bankruptcy is reserved strictly 00:13:49.490 --> 00:13:52.490 for individuals. Only a person can be declared 00:13:52.490 --> 00:13:55.389 bankrupt. So if a big company in London goes 00:13:55.389 --> 00:13:57.669 under, what's it called? They go into liquidation 00:13:57.669 --> 00:14:00.409 or administration. They use corporate insolvency 00:14:00.409 --> 00:14:02.899 procedures. But you'll never hear a news report 00:14:02.899 --> 00:14:06.799 say a British company has gone bankrupt. It's 00:14:06.799 --> 00:14:09.120 just not the right legal term. But that's the 00:14:09.120 --> 00:14:11.399 complete opposite of the North American model. 00:14:11.620 --> 00:14:14.820 Right. In the U .S. and Canada, the word bankruptcy 00:14:14.820 --> 00:14:17.919 is used much more broadly. It applies to insolvency 00:14:17.919 --> 00:14:20.700 proceedings for both people and businesses. That's 00:14:20.700 --> 00:14:22.500 why you hear about a company filing for Chapter 00:14:22.500 --> 00:14:25.200 11 bankruptcy. Let's put a spotlight on Australia, 00:14:25.399 --> 00:14:28.500 which follows that individual -only model. How 00:14:28.500 --> 00:14:30.629 does it work there? It's all governed by a federal 00:14:30.629 --> 00:14:35.009 law, the Bankruptcy Act 1966. And you can end 00:14:35.009 --> 00:14:37.950 up in bankruptcy either voluntarily or involuntarily. 00:14:38.549 --> 00:14:40.970 Involuntarily. A creditor can force you into 00:14:40.970 --> 00:14:43.809 it. They can. If you owe a creditor at least 00:14:43.809 --> 00:14:46.590 $5 ,000 from a court judgment and you don't pay, 00:14:46.830 --> 00:14:49.350 they can ask the court to issue a sequestration 00:14:49.350 --> 00:14:52.009 order, which legally makes you bankrupt. And 00:14:52.009 --> 00:14:54.250 what about if you do it yourself? You file a 00:14:54.250 --> 00:14:56.190 debtor's petition with the Australian Financial 00:14:56.190 --> 00:14:59.700 Security Authority, or AFSA. You have to provide 00:14:59.700 --> 00:15:01.899 a detailed statement of affairs listing everything 00:15:01.899 --> 00:15:04.379 you own and owe. And how long does it last? A 00:15:04.379 --> 00:15:06.440 standard bankruptcy in Australia lasts for three 00:15:06.440 --> 00:15:08.860 years from the day you file that statement. During 00:15:08.860 --> 00:15:11.960 that time, a trustee is monitoring you. And that 00:15:11.960 --> 00:15:15.299 monitoring seems pretty intense. It is. A key 00:15:15.299 --> 00:15:17.279 difference from other systems is the control 00:15:17.279 --> 00:15:20.820 over your travel. Wait, what? If you are bankrupt 00:15:20.820 --> 00:15:23.419 in Australia, you need to get written permission 00:15:23.419 --> 00:15:26.370 from your trustee to travel overseas. If you 00:15:26.370 --> 00:15:28.549 try to leave without it, the federal police can 00:15:28.549 --> 00:15:31.509 stop you at the airport. That is a serious restriction 00:15:31.509 --> 00:15:34.190 on your personal freedom. It is. It's designed 00:15:34.190 --> 00:15:36.690 to make sure you comply and don't try to hide 00:15:36.690 --> 00:15:39.309 assets abroad. And if you don't comply with other 00:15:39.309 --> 00:15:42.370 things, like making required income contributions... 00:15:42.370 --> 00:15:44.590 There are consequences. The trustee can object 00:15:44.590 --> 00:15:47.429 to your discharge, which can extend your bankruptcy 00:15:47.429 --> 00:15:50.019 for another... three or even five years. It's 00:15:50.019 --> 00:15:52.600 a big deal. And like in the U .S., some of your 00:15:52.600 --> 00:15:55.720 assets are protected. They're exempt. Yes. Things 00:15:55.720 --> 00:15:58.480 like basic household goods, tools you need for 00:15:58.480 --> 00:16:01.240 your job, and a car up to a certain value are 00:16:01.240 --> 00:16:04.340 protected. But anything else, like equity in 00:16:04.340 --> 00:16:07.679 a home, can be sold by the trustee. Can you get 00:16:07.679 --> 00:16:10.240 out of the three years early? You can. It's called 00:16:10.240 --> 00:16:12.899 an annulment. The easiest way is to pay all your 00:16:12.899 --> 00:16:15.500 debts in full. More commonly, you can make an 00:16:15.500 --> 00:16:17.899 offer of composition to your creditors. A settlement 00:16:17.899 --> 00:16:20.340 offer. Exactly. You offer to pay a certain amount, 00:16:20.440 --> 00:16:23.159 say 50 cents on the dollar. If enough of your 00:16:23.159 --> 00:16:25.440 creditors agree, you pay that amount and your 00:16:25.440 --> 00:16:28.139 bankruptcy is annulled early. Okay, that's Australia. 00:16:28.320 --> 00:16:31.580 Now, the Netherlands has a very different, very 00:16:31.580 --> 00:16:34.100 structured system. It's very clear. The Dutch 00:16:34.100 --> 00:16:36.179 bankruptcy code has three separate proceedings 00:16:36.179 --> 00:16:38.100 depending on who you are and what the goal is. 00:16:38.200 --> 00:16:40.980 So what's track one? That's filisme. It translates 00:16:40.980 --> 00:16:44.279 as bankruptcy. And it's only for companies. And 00:16:44.279 --> 00:16:46.960 his only goal is liquidation, winding the company 00:16:46.960 --> 00:16:49.559 up. So that's like a corporate Chapter 7, Track 00:16:49.559 --> 00:16:57.419 2. This is also only for companies. And it's 00:16:57.419 --> 00:16:59.279 their reorganization tool. It's like Chapter 00:16:59.279 --> 00:17:02.059 11, giving the company protection from creditors 00:17:02.059 --> 00:17:04.400 so it has time to restructure. And the third 00:17:04.400 --> 00:17:07.039 track must be for individuals. Right. It's called 00:17:07.039 --> 00:17:10.359 schuldzentering. or debt reorganization. It's 00:17:10.359 --> 00:17:13.079 a court ruled process where a judge appoints 00:17:13.079 --> 00:17:16.019 an independent monitor to basically take over 00:17:16.019 --> 00:17:18.599 the person's finances and supervise everything 00:17:18.599 --> 00:17:21.119 during the repayment plan. That sounds intense, 00:17:21.279 --> 00:17:23.440 but it's different from the Australian model. 00:17:23.619 --> 00:17:26.160 It is. While you lose your financial autonomy 00:17:26.160 --> 00:17:28.519 in the Dutch system, you don't have those same 00:17:28.519 --> 00:17:31.240 punitive restrictions on travel. It just reflects 00:17:31.240 --> 00:17:33.099 a different philosophy of enforcement. These 00:17:33.099 --> 00:17:35.339 global differences really show how complex this 00:17:35.339 --> 00:17:37.940 all is. But now we have to dive into arguably 00:17:37.940 --> 00:17:40.420 the most intricate and influential system in 00:17:40.420 --> 00:17:42.519 the world. The United States Bankruptcy Code, 00:17:42.680 --> 00:17:45.619 Title 11 of the U .S. Code. And this isn't just 00:17:45.619 --> 00:17:48.079 some law Congress passed. This power is written 00:17:48.079 --> 00:17:51.559 right into the U .S. Constitution. It is. Article 00:17:51.559 --> 00:17:54.400 1, Section 8 gives Congress the power to establish 00:17:54.400 --> 00:17:57.059 uniform laws on the subject of bankruptcies. 00:17:58.029 --> 00:18:00.410 The founders recognized that this was a national 00:18:00.410 --> 00:18:03.690 issue that needed a consistent federal approach. 00:18:03.930 --> 00:18:07.069 But, and this is a huge but, even though it's 00:18:07.069 --> 00:18:09.869 a federal law, state law plays an enormous role. 00:18:10.190 --> 00:18:12.670 a decisive role, especially when it comes to 00:18:12.670 --> 00:18:14.970 exemptions. And exemptions are the list of property 00:18:14.970 --> 00:18:16.730 that you're allowed to keep that the trustee 00:18:16.730 --> 00:18:19.289 can't take and sell. Exactly. And Congress decided 00:18:19.289 --> 00:18:21.230 to let the state set most of their own exemption 00:18:21.230 --> 00:18:24.890 laws, which means there's massive variation from 00:18:24.890 --> 00:18:27.250 state to state. Which can lead to wildly different 00:18:27.250 --> 00:18:29.490 outcomes for people in pretty similar situations, 00:18:29.529 --> 00:18:31.250 just depending on where they live. Absolutely. 00:18:31.490 --> 00:18:33.589 The classic example is a homestead exemption, 00:18:33.789 --> 00:18:36.609 which protects the equity in your home. States 00:18:36.609 --> 00:18:39.269 like Texas and Florida have, generally speaking, 00:18:39.509 --> 00:18:42.549 an unlimited homestead exemption. You can protect 00:18:42.549 --> 00:18:44.950 a very valuable home. While other states are 00:18:44.950 --> 00:18:47.170 much more limited. And even neighboring states 00:18:47.170 --> 00:18:49.910 can be different. Maryland lets you protect the 00:18:49.910 --> 00:18:53.609 first $6 ,000 of property or cash. Right next 00:18:53.609 --> 00:18:56.650 door, Virginia's exemption is typically $5 ,000. 00:18:57.559 --> 00:18:59.700 That extra $1 ,000 can make a huge difference 00:18:59.700 --> 00:19:01.779 if you're trying to start over. So state law 00:19:01.779 --> 00:19:04.180 determines what you keep. But the moment you 00:19:04.180 --> 00:19:06.519 file, the most powerful protection of all kicks 00:19:06.519 --> 00:19:09.660 in, and it's purely federal. The automatic stay. 00:19:09.900 --> 00:19:12.319 The instant shield. It is. It applies to every 00:19:12.319 --> 00:19:15.960 kind of filing, 7, 11, or 13, and it happens 00:19:15.960 --> 00:19:18.500 immediately. The second your petition is filed 00:19:18.500 --> 00:19:21.119 with the court, a legal stay goes into effect 00:19:21.119 --> 00:19:23.940 that stops almost all collection activity. What 00:19:23.940 --> 00:19:26.390 does it stop, specifically? It stops lawsuits, 00:19:26.630 --> 00:19:28.930 repossessions, foreclosures, evictions, wage 00:19:28.930 --> 00:19:30.829 garnishments, harassing phone calls, collection 00:19:30.829 --> 00:19:32.910 letters. It's designed to give you immediate 00:19:32.910 --> 00:19:34.869 breathing room. It's the big red pause button. 00:19:35.029 --> 00:19:37.910 It is. And once that shield is up, you proceed 00:19:37.910 --> 00:19:40.630 under one of the main chapters. Let's start with 00:19:40.630 --> 00:19:42.269 the most common one for individuals, Chapter 00:19:42.269 --> 00:19:44.849 7. Straight liquidation. This is the quickest 00:19:44.849 --> 00:19:47.630 and simplest form, usually over in four to six 00:19:47.630 --> 00:19:51.000 months. The goal is to eliminate unsecured debt 00:19:51.000 --> 00:19:53.799 credit cards, medical bills, personal loans. 00:19:53.960 --> 00:19:56.319 You surrender your non -exempt property, the 00:19:56.319 --> 00:19:58.980 trustee sells it, and you get a discharge. But 00:19:58.980 --> 00:20:01.160 not everything gets discharged. We know student 00:20:01.160 --> 00:20:03.759 loans usually survive. Right. And so do things 00:20:03.759 --> 00:20:07.339 like child support, alimony, recent tax debts, 00:20:07.460 --> 00:20:10.420 and fines from criminal cases. Those are seen 00:20:10.420 --> 00:20:13.380 as debts to society or family. that you can't 00:20:13.380 --> 00:20:15.380 just wipe away. And you can't just choose to 00:20:15.380 --> 00:20:17.259 file Chapter 7. You have to qualify. You have 00:20:17.259 --> 00:20:20.400 to pass the means test. The means test is a controversial 00:20:20.400 --> 00:20:23.079 and very complex hurdle that was put in place 00:20:23.079 --> 00:20:26.900 in 2005. The idea was to stop higher income people 00:20:26.900 --> 00:20:29.539 from using Chapter 7 and force them into a repayment 00:20:29.539 --> 00:20:32.140 plan instead. How does it work? What's step one? 00:20:32.259 --> 00:20:34.299 Step one is simple. The court looks at your average 00:20:34.299 --> 00:20:36.500 income for the six months before you filed and 00:20:36.500 --> 00:20:38.539 compares it to the median income for a family 00:20:38.539 --> 00:20:40.980 of your size in your state. If your income is 00:20:40.980 --> 00:20:43.390 below that median, you pass. You can file chapter 00:20:43.390 --> 00:20:45.490 seven. And if you're above the median. Then you 00:20:45.490 --> 00:20:47.769 go to step two, which is much more complicated. 00:20:48.049 --> 00:20:50.329 You have to do a disposable income calculation. 00:20:50.609 --> 00:20:53.170 And this is where it gets tricky. Very tricky. 00:20:53.289 --> 00:20:55.650 You start subtracting your monthly expenses. 00:20:55.829 --> 00:20:58.930 But this is the key part. You have to use national 00:20:58.930 --> 00:21:02.049 and local standard expense amounts set by the 00:21:02.049 --> 00:21:04.789 IRS, not necessarily what you actually spend. 00:21:04.990 --> 00:21:08.259 So wait. Even if my rent is $2 ,500 a month, 00:21:08.440 --> 00:21:11.359 the IRS standard for my area might only be $1 00:21:11.359 --> 00:21:14.220 ,800, and that's the number I have to use. That 00:21:14.220 --> 00:21:16.000 is exactly right. The test is designed to be 00:21:16.000 --> 00:21:18.900 tough. After you subtract all those standardized 00:21:18.900 --> 00:21:21.720 expenses, if you have more than a certain amount 00:21:21.720 --> 00:21:24.380 of disposable income left over, you fail the 00:21:24.380 --> 00:21:26.799 test. And you're forced into a repayment plan. 00:21:26.980 --> 00:21:28.640 You're presumed to have the ability to pay something 00:21:28.640 --> 00:21:30.970 back, so you'll have to file Chapter 13. OK, 00:21:31.049 --> 00:21:33.309 so that's the consumer liquidation path. What 00:21:33.309 --> 00:21:36.309 about the big businesses, the lifeline for corporations? 00:21:36.529 --> 00:21:39.470 That's chapter 11. This is the gold standard 00:21:39.470 --> 00:21:42.390 for corporate reorganization. It allows a business 00:21:42.390 --> 00:21:44.670 to keep operating while it restructures its debts 00:21:44.670 --> 00:21:47.289 and tries to become profitable again. And the 00:21:47.289 --> 00:21:49.309 strange thing here is that the same management 00:21:49.309 --> 00:21:52.670 team that ran the company into the ground often 00:21:52.670 --> 00:21:55.410 gets to stay in charge. That's the concept of 00:21:55.410 --> 00:21:58.200 the debtor in position or DIP. The company's 00:21:58.200 --> 00:22:00.500 existing management continues to run the day 00:22:00.500 --> 00:22:02.859 -to -day business, but now they're doing it under 00:22:02.859 --> 00:22:04.759 the supervision of the bankruptcy court. And 00:22:04.759 --> 00:22:07.279 they have a duty to the creditors now. Fiduciary 00:22:07.279 --> 00:22:11.259 duty. Their job is to create a plan of reorganization 00:22:11.259 --> 00:22:14.400 that details how the company will survive and 00:22:14.400 --> 00:22:17.960 how it will pay back its debts over time. Creditors 00:22:17.960 --> 00:22:19.920 get to vote on that plan. And if it's approved, 00:22:20.200 --> 00:22:22.619 the company can emerge with less debt and a healthier 00:22:22.619 --> 00:22:25.319 balance sheet. That's the goal. It's a very powerful 00:22:25.319 --> 00:22:27.740 tool for survival. And you'll sometimes hear 00:22:27.740 --> 00:22:30.400 people in finance talk about a Chapter 22. What's 00:22:30.400 --> 00:22:32.519 that? That's just slang for a company that's 00:22:32.519 --> 00:22:34.720 filing for Chapter 11 a second time. Okay, so 00:22:34.720 --> 00:22:37.299 we have Chapter 7 for liquidation and 11 for 00:22:37.299 --> 00:22:39.819 reorganization. The third main one is Chapter 00:22:39.819 --> 00:22:43.259 13. Chapter 13 is the wage earner repayment plan. 00:22:43.599 --> 00:22:45.799 This is for individuals who have a regular income 00:22:45.799 --> 00:22:49.440 but need help. It's often for people who failed 00:22:49.440 --> 00:22:52.759 the means test for Chapter 7 or for people who 00:22:52.759 --> 00:22:55.319 want to save their house from foreclosure. And 00:22:55.319 --> 00:22:57.099 the big difference is you get to keep all your 00:22:57.099 --> 00:22:59.839 property. You do. Even property that would have 00:22:59.839 --> 00:23:03.140 been sold in a Chapter 7. The tradeoff is that 00:23:03.140 --> 00:23:06.660 you commit to a 3 -5 year repayment plan. You 00:23:06.660 --> 00:23:09.099 pay all of your disposable income to a trustee 00:23:09.099 --> 00:23:11.759 each month, and the trustee distributes it to 00:23:11.759 --> 00:23:14.940 your creditors. And how long is the plan? 3 years 00:23:14.940 --> 00:23:17.920 or 5? It depends on your income. If your income 00:23:17.920 --> 00:23:20.099 is below your state's median, it's a 3 -year 00:23:20.099 --> 00:23:22.619 plan. If it's above the median, it has to be 00:23:22.619 --> 00:23:25.059 a 5 -year plan. And at the end of that period, 00:23:25.279 --> 00:23:27.619 if you've made all your payments, you get a discharge 00:23:27.619 --> 00:23:30.420 of any remaining eligible debt. But it's a long 00:23:30.420 --> 00:23:32.539 haul. And if you miss payments, the case can 00:23:32.539 --> 00:23:34.599 be dismissed, the automatic stay disappears, 00:23:34.960 --> 00:23:37.279 and you're right back where you started. We've 00:23:37.279 --> 00:23:39.559 established that in some countries, like Canada, 00:23:39.779 --> 00:23:42.779 bankruptcy means liquidation, full stop. So they 00:23:42.779 --> 00:23:44.599 need different tools if they want to restructure 00:23:44.599 --> 00:23:47.640 and survive. They do. For individuals in Canada, 00:23:47.839 --> 00:23:50.380 the main alternative to a personal bankruptcy 00:23:50.380 --> 00:23:53.160 is something called a consumer proposal. And 00:23:53.160 --> 00:23:55.599 what is that exactly? It's basically a formal 00:23:55.599 --> 00:23:58.019 settlement offer you make to your creditors through 00:23:58.019 --> 00:24:01.420 a trustee. It's for people with debts under $250 00:24:01.420 --> 00:24:04.599 ,000, not including their mortgage. You propose 00:24:04.599 --> 00:24:07.059 to pay back a percentage of what you owe over 00:24:07.059 --> 00:24:10.220 a maximum of five years. And why would creditors 00:24:10.220 --> 00:24:13.200 agree to take less than what they're owed? Because 00:24:13.200 --> 00:24:15.420 the alternative is that you file for personal 00:24:15.420 --> 00:24:17.960 bankruptcy, where they would get even less money, 00:24:18.000 --> 00:24:20.000 maybe just... pennies on the dollar after everything 00:24:20.000 --> 00:24:22.480 is sold. A consumer proposal is almost always 00:24:22.480 --> 00:24:25.059 a better deal for them. A bird in the hand. Exactly. 00:24:25.339 --> 00:24:27.839 And once they accept it, all collection action 00:24:27.839 --> 00:24:30.460 has to stop. And what about for big Canadian 00:24:30.460 --> 00:24:33.319 companies that need that Chapter 11 style protection? 00:24:33.740 --> 00:24:36.140 They use a law called the Companies Creditors 00:24:36.140 --> 00:24:39.640 Arrangement Act, or CCAA. It's for businesses 00:24:39.640 --> 00:24:42.299 with more than $5 million in debt, and it does 00:24:42.299 --> 00:24:45.569 exactly what Chapter 11 does. It pauses all creditor 00:24:45.569 --> 00:24:47.950 actions and gives the company time to come up 00:24:47.950 --> 00:24:50.269 with a survival plan. OK, let's jump back across 00:24:50.269 --> 00:24:53.450 the pond to the UK. We mentioned involuntary 00:24:53.450 --> 00:24:56.450 bankruptcy there. Right. A creditor who is owed 00:24:56.450 --> 00:25:00.390 at least £5 ,000 can petition the court to force 00:25:00.390 --> 00:25:02.670 a person into bankruptcy. Why would they do that? 00:25:02.750 --> 00:25:04.990 It sounds expensive and aggressive. It's usually 00:25:04.990 --> 00:25:07.069 not about getting the most money back. It's about 00:25:07.069 --> 00:25:10.089 control and investigation. Yeah. Sometimes it's 00:25:10.089 --> 00:25:13.309 to force the sale of a major asset. Like a house. 00:25:13.430 --> 00:25:16.130 What more often? It's to punish the debtor or, 00:25:16.250 --> 00:25:18.950 more strategically, to get the power of the trustee 00:25:18.950 --> 00:25:22.089 on their side. Once someone is bankrupt, the 00:25:22.089 --> 00:25:24.589 trustee can go in and do a full forensic audit 00:25:24.589 --> 00:25:27.630 of their finances, subpoena records, and uncover 00:25:27.630 --> 00:25:30.009 hidden assets. So the creditor is essentially 00:25:30.009 --> 00:25:32.829 using the system to hire a detective. That's 00:25:32.829 --> 00:25:35.250 a good way to put it. But the U .K. system itself 00:25:35.250 --> 00:25:37.869 has gotten much more debtor friendly. A bankruptcy 00:25:37.869 --> 00:25:40.690 there now usually only lasts for a maximum of 00:25:40.690 --> 00:25:42.829 12 months. That's a huge difference from the 00:25:42.829 --> 00:25:44.789 three years in Australia. It's all part of that 00:25:44.789 --> 00:25:47.250 fresh start philosophy. And a really key change 00:25:47.250 --> 00:25:49.869 they made back in 2000 was to protect pensions. 00:25:49.970 --> 00:25:52.269 Now, generally, your occupational pension is 00:25:52.269 --> 00:25:54.829 safe and can't be seized in a bankruptcy. Which 00:25:54.829 --> 00:25:57.410 is a huge deal for someone's long -term security. 00:25:57.630 --> 00:26:00.589 A vital safeguard. It separates your future from 00:26:00.589 --> 00:26:02.940 your present failure. And that idea seems to 00:26:02.940 --> 00:26:05.759 be part of a much broader trend across the entire 00:26:05.759 --> 00:26:09.079 European Union. It is. After the financial crises 00:26:09.079 --> 00:26:12.319 in the early 2000s, there was a realization that 00:26:12.319 --> 00:26:14.940 too many businesses were just ending up in liquidation. 00:26:15.039 --> 00:26:17.720 It was destroying economic value. So they looked 00:26:17.720 --> 00:26:20.240 for a better model. They did. And they looked 00:26:20.240 --> 00:26:23.509 to the U .S. Starting around 2013, countries 00:26:23.509 --> 00:26:27.049 like France, Germany, Spain, and Italy all revamped 00:26:27.049 --> 00:26:29.710 their laws, modeling them on Chapter 11. The 00:26:29.710 --> 00:26:32.490 goal was to shift from liquidation to restructuring. 00:26:32.589 --> 00:26:35.519 Exactly. to give businesses a real chance to 00:26:35.519 --> 00:26:38.400 survive a crisis. And it ties into this bigger 00:26:38.400 --> 00:26:41.700 EU policy goal they call the second chance. A 00:26:41.700 --> 00:26:44.200 second chance for entrepreneurs. Right. The philosophy 00:26:44.200 --> 00:26:46.299 is that failure is a natural part of business 00:26:46.299 --> 00:26:48.940 and innovation. The legal system shouldn't punish 00:26:48.940 --> 00:26:51.099 it permanently. It should give honest entrepreneurs 00:26:51.099 --> 00:26:53.559 a path back to developing a new business. So 00:26:53.559 --> 00:26:55.829 we've come on this incredible journey. We started 00:26:55.829 --> 00:26:57.829 with the literal broken bench of Renaissance 00:26:57.829 --> 00:27:00.150 Italy, went through the horrors of debt slavery. 00:27:00.549 --> 00:27:03.410 All the way to these highly complex, structured 00:27:03.410 --> 00:27:06.369 legal frameworks we have today that are designed 00:27:06.369 --> 00:27:09.769 to manage failure in a way that, well, benefits 00:27:09.769 --> 00:27:11.710 everyone as much as possible. It's all about 00:27:11.710 --> 00:27:14.150 trying to find that balance, isn't it? The creditor's 00:27:14.150 --> 00:27:16.289 right to be paid versus the debtor's need for 00:27:16.289 --> 00:27:18.329 a fresh start. That's the fundamental tension. 00:27:18.609 --> 00:27:21.289 And we've seen how the focus has shifted so heavily 00:27:21.289 --> 00:27:24.369 toward rehabilitation. The UK's 12 -month term. 00:27:24.730 --> 00:27:27.589 the EU's second chance policy, the power of Chapter 00:27:27.589 --> 00:27:30.470 11. The whole trend seems to be about preserving 00:27:30.470 --> 00:27:32.430 the debtor, whether it's a person or a company. 00:27:32.630 --> 00:27:35.789 It is. And that's what makes that one big outlier 00:27:35.789 --> 00:27:38.690 in the U .S. system so stark. You're going back 00:27:38.690 --> 00:27:41.509 to student loans. I have to. Because if the whole 00:27:41.509 --> 00:27:44.210 purpose of modern bankruptcy law is to allow 00:27:44.210 --> 00:27:46.869 for rehabilitation, to ensure a minimal standard 00:27:46.869 --> 00:27:49.269 of living, to give people a fresh start. Then 00:27:49.269 --> 00:27:51.490 what does this very specific, very difficult 00:27:51.490 --> 00:27:54.099 carve out tell us? What does it say about our 00:27:54.099 --> 00:27:57.259 priorities when this one particular class of 00:27:57.259 --> 00:28:00.440 debt is so protected that a borrower has to prove 00:28:00.440 --> 00:28:03.480 near permanent destitution just to get a partial 00:28:03.480 --> 00:28:06.579 discharge? In a system built on second chances, 00:28:06.700 --> 00:28:10.259 it forces you to ask which debts we as a society 00:28:10.259 --> 00:28:12.579 have decided are more important than that second 00:28:12.579 --> 00:28:15.460 chance itself. It suggests a really deep conflict 00:28:15.460 --> 00:28:18.400 in our economic and maybe even moral calculus 00:28:18.400 --> 00:28:20.839 about what debt is for and who ultimately has 00:28:20.839 --> 00:28:23.640 to pay for it. A really profound question. It 00:28:23.640 --> 00:28:25.839 is. And it's a tension point that you, the listener, 00:28:25.960 --> 00:28:28.140 should definitely continue to think about. Something 00:28:28.140 --> 00:28:30.299 to mull over indeed. Thank you for joining us 00:28:30.299 --> 00:28:32.420 on this deep dive into the broken benches and 00:28:32.420 --> 00:28:34.220 complex chapters of bankruptcy law. We'll see 00:28:34.220 --> 00:28:34.599 you next time.