Consumer bankruptcy law for Ethiopia: Lessons from United States and Germany

Abstract

After deregulation of consumer credit and resultant availability, over-indebtedness became a problem for many countries. As a response to this, many jurisdictions have departed from their “merchant-oriented” bankruptcy law to include consumers giving them discharge and fresh start. Germany, United States, United Kingdom and France are some of the countries that have adopted consumer bankruptcy laws after experiencing over-indebtedness problem. In Ethiopia, credit market is still highly regulated. Nevertheless, consumers have access to credit and are potentially exposed to risk of indebtedness and there is a move towards that. Adopting consumer bankruptcy law can also be an ex ante solution. More importantly, introducing such law to Ethiopia is more convincing based on the entrepreneurship, social insurance, development policy and rehabilitative function of discharge and fresh start. The author argues that Ethiopia should follow the global trend by adopting consumer bankruptcy law with adequate discharge and fresh start. This law should be based on German model, repayment plan and then discharge: repayment of certain portion of the debt and covering cost of proceeding by the debtor.

Keywords: bankruptcy, debt, discharge, exemption, fresh start, insolvency, merchant-oriented, over-indebtedness, rehabilitation, repayment