Personal Bankruptcy: Model structures and the fresh start

Though it seems as if personal bankruptcy regulation was a new legislative solution of the last decades, handling personal bankruptcies has a long history and broad legislative background. The need for implementing a modern regulatory framework for handling personal bankruptcies goes back to the second part of the 20th century, when personal, consumer lending reached a massive volume, and non-performing defaulted portfolios resulted in serious macroeconomic, social, and political impact. Many countries have introduced measures to handle defaulted personal loans, and personal bankruptcy regulations were launched in most European countries during the last 30 years. Though structures are different, the general elements of such systems could be outlined. One of the most disputed principles of the systems is the handling of “fresh start” and the implicated degree of the “leniency” of the systems. In this working paper, I present the brief history, the structural elements of personal bankruptcy regulations, and the building blocks of the fresh start. I also discuss three different legislative solutions: the US, the Austrian, and the Hungarian model. I conclude that there are continuous changes in the systems regarding the handling of fresh start. While the US legislation moves to the less lenient direction, there are measures from European countries to change the laws to more debtor-friendly systems. The Hungarian version was created to follow the strict, less lenient structures in a time when some countries in the region moved towards more lenient systems.