American Bankruptcy Law
The American bankruptcy laws had their start in England during our colonial history. There have been a significant number of revisions and other changes throughout bankruptcy’s history. Even the Pre-Revolutionary War bankruptcy laws were remarkably different from those of today’s laws.
The first bankruptcy law in England was enacted more than 450 years ago during the reign of Henry VIII. What we know today as Debtors were called “offenders” under this first law. They were seen as perpetrators of a property crime against their creditors. The purpose of this law was not to give relief to debtors, but rather to provide a more efficient way to collect against creditors debtors.
In a bankruptcy, the assets of the “offender” were seized, sold, and the proceeds distributed to creditors. And then the creditors could still continue pursuing the “offender” for any remaining balance owed.
A bankruptcy proceeding could only be started by creditors, and not by debtors. Creditors would accuse a debtor of an “act of bankruptcy”. This could have been something such as physically hiding from creditors, or hiding assets by transferring them to someone else. Today this would be called “involuntary bankruptcy” but it is rarely used.
Only merchants could file bankruptcy, but why? Well credit was seen as immoral, with only merchants being allowed to use credit, and even then it was considered to be a necessary evil. As the only ones who had access to credit, only merchants had the capacity to become bankrupt.
For the following century and a half into the late 1600s, Parliament made the law even more relaxed for creditors. People known as bankruptcy “commissioners” broke into the homes of “offenders”, seize their assets, and put them into pillories, and even cut off their ears.
It wasn’t until the early 1700s the discharge of debts was permitted for cooperative debtors, but only if the creditors consented! Yet the law still provided for the death penalty for fraudulent debtors, though it was very rarely used. Cooperative borrowers received an allowance from their own assets. In other words, the very early beginnings of the current Chapter 13 “adjustment of debts.”
These are the same English bankruptcy laws that were largely in effect at the time the U.S. Constitution was adopted. The Bankruptcy Clause of the U. S. Constitution gave Congress power to “pass uniform laws on the subject of bankruptcies.” Fortunately, the language is so open-ended that it gave bankruptcy laws the opportunity to evolve during the last two hundred fifty years into one that is both more compassionate and beneficial for the economy.
If you have any other questions about bankruptcy or how our bankruptcy attorney can assist you, contact us at (765) 420-8900. It would be our pleasure to help you in any way we can.