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.
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.
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.