The Evolution of American Bankruptcy Reform

Bankruptcy in the United States was instituted by the United States Constitution under Article 1, Section 8, and Clause 4, which authorizes Congress to enact uniform laws on the subject of bankruptcies throughout the United States. Slowly, our current laws have evolved through bankruptcy reforms and legislation.

The first act on bankruptcy was made in 1800 and lasted only three years. The tenants of the law allowed for only merchants as eligible debtors and only by involuntary bankruptcy.

The act provided for the discharge of debts as well as the person of a cooperative debtor, it granted a graduated allowance to the conforming bankrupt, and it allowed for limited property exemptions. Bankruptcy fraud was subject to criminal prosecution where the accused, if convicted, could spend one to ten years in jail.

The Bankruptcy Act of 1800 was repealed in 1803 and returned the debtors to the mercies of the state jurisdictions. The next major effort at bankruptcy reform came in 1841 when Congress passed a bankruptcy law that was to historically change the concept of bankruptcy filings, despite the law lasting only one year. The Bankruptcy Act of 1841, because of the Panic of 1837, changed the focus from a creditor oriented statute to one that was debtor oriented. It also offered bankruptcy protection for any debtor who voluntarily sought relief.

Because of the political climate of the day, the debate over the 1841 law caused many Americans to lose interest in bankruptcy statutes, and the law was repealed. It was not until the Panic of 1857 that Americans became very interested in bankruptcy reform once again. After almost a decade of debate, the Bankruptcy Act of 1867 was passed, allowing both voluntary and involuntary bankruptcies.

Today, there are two forms of bankruptcies that exist- voluntary and involuntary. Although rare, an involuntary bankruptcy occurs when a creditor legally forces bankruptcy against a debtor. The greatest majority of bankruptcies, however, are voluntary. Voluntary bankruptcy filings by debtors can take precedence over involuntary filings by creditors.

The Bankruptcy Act of 1867 was repealed in 1878. Ten years passed before the next bankruptcy statute would be attempted.

The Bankruptcy Act of 1898, referred to as the Nelson Act, became the first personal bankruptcy legislation to withstand the test of time. This Act authorized the filing of voluntary bankruptcy petitions by any person who owed a debt, except for corporations. The legislation was amended in 1910 to include voluntary filings by corporations. The new law provided voluntary bankruptcy to any person except a municipality, railroad, insurance company, or banking corporation. Involuntary bankruptcies were permitted under this Act but stringent rules had to be followed by the creditors.

The Bankruptcy Act of 1898 was substantially reformed under the Chandler Act of 1938. The purpose of the Chandler Act was to encourage and facilitate bankruptcy reorganization in order to avoid unnecessary or premature liquidations.

The Bankruptcy Act of 1898 was repealed by the Bankruptcy Reform Act of 1978, which became the first codified bankruptcy law under Title 11 of the United States Code. The code has been amended several times. Most recently it was amended through the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The 2005 Act enacted the means test to determine whether an individual qualifies to file Chapter 7 Bankruptcy.

Bankruptcy laws have evolved. Today, filing for bankruptcy is a legal proceeding designed to protect creditors and debtors. Bankruptcy allows debtors to start fresh and eliminate certain types of debts.

Bankruptcy laws can be complicated. If you are considering bankruptcy, contact a bankruptcy lawyer.

If you need relief from the stress of debt and you live in or around the metropolitan areas of Salt Lake City or Ogden, Utah, contact us at www.betterbankruptcy.com .We will help you find a bankruptcy attorney in your area who will answer your bankruptcy questions.

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