Bankruptcy History & ReligionDiane Drain, attorney and retired law professor2022-06-28T06:16:38-07:00

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.

[History of bankruptcy law. (2021, December 22). In Wikipediahttps://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…

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

Diane L. Drain Bankruptcy Lawyer
My Philosophy represented with helping hands bridge

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

My Philosophy represented with helping hands bridge

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.”

I recommend reading this article “Does God Want You To Be Bankrupt?”

There are numerable Biblical references regarding the evils of greed (Proverbs 30:15, 1:19; Luke 11:39; 1 Timothy 6:10, 3:3, 6:10).

We are stewards of God’s wealth, according to Scripture. As a result, misusing, squandering, or misappropriating it would constitute a sin. This isn’t to say that interest isn’t a valid expense. Excessive interest charge, on the other hand, is usury, which is a kind of robbery. (Proverbs 11:26; 1Timothy 6:17; Luke 19:46; Matthew 21:10-17). This sin created excessive consumerism that gave birth to a false god in violation of the First Commandment.*


God gave us this wisdom in the Bible: “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.” (Romans, Chapter 13, Verse 8.)

Bankruptcy is a constitutional right

In the United States, bankruptcy is your constitutional right.

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.

The Bankruptcy Act of 1800 is passed by Congress on April 4, 1800, in order to free certain powerful men from debtors’ jail.
The new bankruptcy rules were enacted so that Robert Morris and others like him could be declared bankrupt and released from debtors’ prisons, where they had been imprisoned under state law.

This is how Morris’ biographer explains it. “In the spring of 1800, spurred by the string of failures that swept the country—Morris’s being perhaps the largest—Congress passed the nation’s first bankruptcy law. Designed to limit fraud and equalize competing claims, it allowed for the release of major debtors upon the petition of their creditors.”

“In Morris’s case, as might be expected, the negotiations were protracted, but on August 26, 1801, he walked once more through the gates of the Prune Street Jail.”

Morris writes: “I obtained my liberty last evening, and had the inexpressible satisfaction to find myself again restored to my home and family.”

“He’d been released from prison, but not from his debts. The next three months Morris spent in hearings before a panel of bankruptcy commissioners appointed to manage the claims of more than ninety creditors.”

Morris’s contributions to America’s founding and his “indelible impact on the life of its people. His secret agents had supplied the armies of the Revolution, his credit had salvaged its finances, and his faction had fashioned its Constitution.”

“More than that, Morris installed his pragmatic, realist, modernist vision of a free people united by the principles of economic self-interest and not by bonds of state or political authority.”

I recommend reading “First-Ever U.S. Bankruptcy Law – Enacted With a Pandemic’s Help”

Bankruptcy and Religion

“Jesus Christ didn’t suffer the greedy well. “And He found in the temple those who sold oxen and sheep and doves, and the money changers doing business. When He had made a whip of cords, He drove them all out of the temple, with the sheep and the oxen, and poured out the changers’ money and overturned the tables.”

John 2:14-15

MORE RELIGIOUS REFERENCES

LET US NOT FORGET THE LORD’S PRAYER: “…AND FORGIVE US OUR DEBTS AS WE FORGIVE OUR DEBTORS”

Every seven years, Jewish law allows for the cancellation of brethren’s obligations (Deut. 15: 1-2, NIV), and on the 50th year (jubilee), Jews “shall proclaim liberation throughout the land, to all its people” (Lev. 25:10, NIV). The Jewish lawmakers realized that putting people in debt would only harm their economy in the long run. Their economy remained strong and grew as a result of these fundamental principles.

“If your debtor be in straits, grant him a delay until he can discharge his debts; but if you waive the sum as alms it will be better for you, if you but knew it. Believers, have fear of God and waive what is still due to you from usury, if your faith be true; or war shall be declared against you by God and His apostle. If you repent, you may retain your principle, suffering no loss and causing loss to none.”

The Koran 2:276.

The Bible’s prohibitions on usury (the illegal charging of interest) are disregarded.

These creditors have disobeyed the Commandments of Moses concerning greed. Credit card businesses are now permitted to engage in legally sanctioned loan sharking. Surprisingly, when it comes to working men and women in today’s society who are crushed by usurious interest rates, Christian leaders are silent, inactive, and disinterested. Christians in general appear to be unconcerned with their own suffering. It’s difficult to argue that charging 18 percent or more is anything but greed.


Picture of Bishop Paul Peter Jesep

Bishop Paul Peter Jesep

“If credit card representatives told Jesus he had to pay 18 percent interest or more, he may have taken a whip of chords to show his disapproval.” Bishop Jesep

Because Jesus is not here in person to take action, it’s time Christian leaders use their political clout to drive out today’s moneychangers from the homes of families.” Catholic Reflections & Reports.

By Diane L. Drain, attorney and counselor at law. * I want to thank Bishop Paul Peter Jesep, Ukrainian Autocephalous Orthodox Church – Sobornopravna of Europe and the Americas for his help on the theological history of usury and credit. His Grace is based in New England. He may be reached at [email protected]

Want to learn more?

Understanding the Law is a Challenge for Everyone – Including Attorneys

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.”

Go to Top