disclaimer stampThis website is not intended to be a legal advice resource. It is only meant to be used for educational reasons. Please don’t take any action or refrain from taking any action based on what you’ve read on this website. This website, article, or link may contain outdated, incorrect, or irrelevant information. It is your obligation to speak with an expert attorney who can apply current legislation or laws to your personal situation in a professional manner.

There is no attorney-client relationship formed by using this site or communicating with Law Office of D.L. Drain or any of our employees. Please read the complete disclaimer for additional information.

It is vital that you seek legal advice from a qualified attorney on your individual situation. It will almost certainly cost you less to seek advice before acting than it will to repair your mistakes.


We are not the first to face this economic problem, nor will we be the last.

Even some of the founding fathers didn’t think much of financial institutions. Thomas Jefferson called banks “more dangerous than standing armies.”

Bankruptcy is specifically authorized in United States Constitution, Art. 1, Section 8 (4).

Bankruptcy laws are very powerful and they are all encompassing. Bankruptcy affects people and small companies in many ways. Other laws must bow to the bankruptcy laws. A divorce, a lawsuit and a foreclosure of property are all put on hold until, and only if, the bankruptcy is no longer in force, or the Bankruptcy Court gives those creditors permission to continue with their actions.

April 4, 1800, Congress passes the Bankruptcy Act of 1800 in order to gain the release of certain power men from debtors’ prison.

The reason for the new bankruptcy laws was so that Robert Morris, and others like him, can be declared bankrupt and released from debtors’ prison, where they are being held under state laws.

Morris’s biographer explains it all like this. “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.”

bankruptcy history


Company bankruptcies are necessary to stop aggressive creditors from closing down viable, but overwhelmed businesses.

Through a Chapter 11 the company pays back some of their debts, but does so at terms it can afford. Chapter 11 is used to refurbish small and large companies. It may be a method to help a company scrape off debt that is overwhelming and get rid of obligations that are over financed. Through a Chapter 11 employees are kept working, inventory purchased and taxes paid. Without Chapter 11 those employees would be out of work, the providers of the inventory would suffer financial hardship and taxes burden would fall on others.

Some creditors, especially credit card companies, have become outrageously greedy, and sometimes very deceitful. Many times these creditors have actually been the reason that my clients are forced to file bankruptcy. For instance – a collection company for one of the largest credit card company told my client, an 82-year old widow, that he “had the legal right to bring a moving van to her house and take anything he wanted”.  Diane L. Drain

Sometimes borrowers abuse creditors.

The borrowers take on debts that they never intend to pay. The borrowers falsify their financial statements. They purposely lie about assets and use every method to mislead old and new creditors. The bankruptcy laws are also designed to help protect the creditors. If a borrower sells assets for less than they are worth, puts debts on credit cards knowing that they cannot pay the debts or fraudulently takes money without the intent of paying – those creditors are not the aggressors; they are the good guys. The bankruptcy laws permit reaching back in time and recapturing the assets that were sold or money that was paid. These assets are brought back into the bankruptcy estate and distributed evenly among the creditors.

Bankruptcy is not a time for injured creditors to be passive.

They must actively participate in the process in order to be protected.

We are not the first to face this economic problem, nor will we be the last.

Even some of the founding fathers didn’t think much of financial institutions. Thomas Jefferson called banks “more dangerous than standing armies.”

Andrew Jackson, told a delegation of bankers that they were a “den of vipers and thieves.”

Thousands of years before the birth of Christ excessive charging of interest had been denounced. In the ancient world writers, philosophers, and political figures all noted its harm to society and the individual. Aristotle called the birth of money from money “unnatural.” Julius Caesar capped the interest of loaning money at 12 percent and Justinian dropped it to 8 percent.*

Can you now see how the very economy of our country would be directly affected if we were not protected by these well founded principals of bankruptcy?

Perhaps this helps you understand how important bankruptcy is to our daily personal, professional and social lives. Every one of us would be directly affected if the bankruptcy laws did not exist.

Therefore, the next time someone mentions the word “bankruptcy,” don’t be so quick to form a negative opinion and assume “failure” goes hand-in-hand with bankruptcy.

These people are in pain.  The need to consider bankruptcy is not as easy to see as a broken back or leg, yet it is very real and extremely painful.  It actually takes more time, energy and will power to put yourself under the close scrutiny of the bankruptcy process than it takes to close the business or go underground as a consumer. Think of it as an area of law that holds our lives together and keeps us functioning as a growing and healthy economy. Give bankruptcy law the credit it deserves.  It allows people and businesses to start over.  To pay their taxes, buy food and other necessities, or allows them to pay their employees so they can buy food and other necessities.

All of this and more is why I wake every morning excited that I can help both debtors and creditors understand bankruptcy.

Diane Drain