Where Did Bankruptcy Come From?

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Where did bankruptcy come from?

So where did bankruptcy come from? Throughout humanity’s history, societies have developed different laws and regulations for how to handle debt. These laws were typically harsh and often self-defeating. For example, some regions of the world mandated that debtors could be executed for failure to pay a debt, which of course meant that the creditor would never recover what they had lent. Even less extreme measures often resulted in debtors being sent to prison, which again inhibited any hope for the creditor to be paid back. In fact, debtor’s prisons weren’t formally abolished from United States’ federal law until 1833. (Source: https://www.themarshallproject.org/2015/02/24/debtors-prisons-then-and-now-faq).

Where did bankruptcy come from? Bankruptcy on a national scale had a rather bumpy start in this country, despite the Founding Fathers’ recognition of its importance. James Madison said,

“The power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce, and will prevent so many frauds where the parties or their property may lie or be removed into different States that the expediency of it [i.e., Congress’s exclusive power to enact bankruptcy laws] seems not likely to be drawn into question” (Federalist, no. 42).

Despite the awareness of its value, the United States did not establish a federal bankruptcy system until over a decade after the Constitution had been ratified. During that gap of time, states were left to create and enforce their own bankruptcy laws. The initial three attempts to establish a national law wavered back and forth between giving creditors too much power and not giving them enough. Finally, in 1898, Congress passed a law that has never been repealed since; only reformed, most extensively in 1978 and then again in 2005 with the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act. Each year it seems Congress tinkers with the bankruptcy laws that unfortunately have tended to create a mine field of regulations in the name of reform.

Filing a Utah bankruptcy, as I have repeatedly pointed out in this blog, is note something you would want to take on yourself as a DIY project. Working with an experienced bankruptcy lawyer can help you avoid the numerous pit falls created by Congress and help you achieve your goal to relive yourself of the excessive burden of debt.

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