History & Religion of Bankruptcy
A Brief History of Bankruptcy:
In Ancient Greece, bankruptcy did not exist. If a man owed and he could not pay, he and his wife, children or servants were forced into “debt slavery”, until the creditor was paid via their physical labor. Later Medieval canon law allowed for a debtor to be discharged and make a fresh start, after giving to his creditors all his goods except some bare necessities. English law was the first to establish the Statute of Bankrupts in 1542. Establishing debtor’s prison, the bankrupt was seen as being bonded to his creditors and would be released from jail only if he had assets that did not exceed £20, but if any of their creditors objected, they had to stay inside. Voluntary bankruptcy was not authorized until the passing of the Bankruptcy Law Consolidation Act 1849. Upon the ratification of the United States Constitution in 1789, Congress was given the power under Article I, Section 8, Clause 4 to legislate for “uniform laws on the subject of Bankruptcies” throughout the United States. Congress’ first law was the Bankruptcy Act of 1800, which was involuntarily and only limited to traders. The Bankruptcy Act of 1938 expanded voluntary access to the bankruptcy system, and voluntary petitions were made more attractive to debtors.
A 1909 Perspective On Bankruptcy Laws v. Similar State Laws (From Samuel Williston)
Every now and then we get a glimpse into the past . . . that casts light on issues and events of today.
One such glimpse is a Harvard Law Review article from 1909: “The Effect of a National Bankruptcy Law upon State Laws.”[Fn. 1]. It’s by Samuel Williston—the same Samuel Williston who authored “Williston on Contracts” and who served as professor of law at Harvard Law School from 1895 to 1938.
[History of bankruptcy law. (2021, December 22). In Wikipedia. https://en.wikipedia.org/wiki/History_of_bankruptcy_law]
Our existing bankruptcy laws are based on the principle that everyone has a right to a financial fresh start. Economic problems have existed for thousands of years, so don’t be afraid of your creditors. Instead, be proactive rather than reactive.
We are not the first or the last to face this economic challenge.
Financial institutions were viewed with suspicion by several of the founding fathers. Banks, as Thomas Jefferson put it, “are more dangerous than standing armies.”
The United States Constitution, Art. 1, Section 8(4), expressly authorizes bankruptcy.
Bankruptcy rules are quite powerful and comprehensive. Bankruptcy has a wide range of consequences for individuals and small businesses. The bankruptcy laws must take precedence over all other legislation. Typically, a divorce, a lawsuit, and a property foreclosure are all put on hold until the bankruptcy is discharged or the Bankruptcy Court grants the creditors permission to proceed with their actions. Read More…
History: from Colonial Times
An Olde Argument for Bankruptcy Laws (from 1755): A Lesson for Today. By: Donald L Swanson Bankruptcy issues have been around for a very long time—for centuries, in fact. And bankruptcy issues have been discussed in these United States for the entire time of our existence–and before.
Even in our Colonial times (prior to 1776), bankruptcy and insolvency issues were in much discussion—especially since debtors often found themselves imprisoned, back then, for unpaid debt.
What follows is a letter (in condensed form) written in 1755 (that’s more than twenty years prior to the Declaration of Independence) arguing for the creation of bankruptcy laws to address problems of debt and insolvency, including the imprisonment remedy.
Such letter and its arguments provide a fascinating insight into bankruptcy issues of olde—which are instructive for the bankruptcy issues of our present day.
What are the lessons of our religious text for us?
Many of my clients are ashamed and self-conscious about the prospect of declaring bankruptcy. I remind them that the Bible advocates debt forgiveness and that our bankruptcy rules are based on this idea. Since Moses’ time, there has been a philosophy of consumer protection.
Diane L. Drain
History of Bankruptcy
The first bankruptcy law
There was no such thing as bankruptcy in Ancient Greece. If a man owed money and couldn’t pay it back, he and his family, including his wife, children, and servants, were placed into “debt slavery” until the creditor recouped his losses via physical work.
According to the Torah, or Old Testament, every seventh year is a Sabbatical year, during which all community debts must be forgiven, but not those due by “foreigners.” However, every 49th year, at the Year of Jubilee, all debts must be forgiven, both for fellow community members and for foreigners, as well as all debt-slaves. The sounding of trumpets throughout Israel heralds the start of the Year of Jubilee.
An insolvent person was deemed to be permitted time to pay back his debt under Islamic teaching, according to the Quran. “And if someone is in need, postpone till a better moment.” However, if you give from your right as charity, it is better for you.”
In the years 1557, 1560, 1575, and 1596, Philip II of Spain had to declare four states bankrupt. Spain is the first sovereign nation to declare bankruptcy in history.
The Bankruptcy Act of 1542 in England was the earliest piece of recognized bankruptcy legislation. Bankrupts were seen as criminals, and the Act declared that its goal was to prevent “crafty debtors” from fleeing the country.
In the United States, the United States Constitution, Art. 1, Section 8(4), expressly authorizes bankruptcy.
“The proper function of man is to live, not to exist. I shall not waste my days in trying to prolong them. I shall use my time.”
– Jack London
Religious Takeaway
WHAT ARE THE LESSONS OF OUR RELIGIOUS TEXTS FOR US?
Many of my clients are ashamed and self-conscious about the prospect of declaring bankruptcy.
I remind them that the Bible advocates debt forgiveness and that our bankruptcy rules are based on this idea. Since Moses’ time, there has been a philosophy of consumer protection —
• Do not mistreat any widows or orphans.
• If you lend money to a poor person, do not charge any interest.
• Do not mistreat any foreigners among you.
• Leave part of your harvest in the fields for the poor to glean.
• Do not spread false rumors.
• Do not give false testimony in court.
• Make no false accusations.
• Do not accept bribes.
• If you take a poor man’s cloak as surety for a loan, give it back to him when he needs it to keep warm.
• If your enemy’s animal is running loose, return it safely to him.
Leviticus – “If a fellow Israelite living near you becomes poor and cannot support himself, charge no interest on any money you lend him and take no profit on any food you sell him.”
Everyone, including attorneys, face difficulties in understanding bankruptcy law.
Bankruptcy law has become too complicated for even excellent lawyers to fully comprehend. For instance commercial bankruptcy attorneys will rarely practice consumer bankruptcy, and vise versa.
A lot of us assume that legal services and decent legal advice is out of their reach. That may be true for some, but not for customers seeking bankruptcy assistance, because the initial consultation, at least at our office, is free. The Internet, neighbors and acquaintances, as well as inept lawyers and document preparers, are all sources of bad “legal advice.”