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Brief History of Bankruptcy

June 7, 2013

Throughout history civilizations have enslaved individuals unable to pay their debts. Even today, some cultures treat insolvent debtors like criminals. On the other hand, the idea of debt forgiveness is not new and can be traced back to the Old Testament. The Book of Leviticus explains that every fifty years should be a “Jubilee Year,” or holy year, when all debts are eliminated and any Israelite that sold himself into slavery is freed. Forgiveness of debt is also addressed in the Book of Deuteronomy 15:1-2, which states, “At the end of every seven years you must cancel debts. This is how it is to be done: Every creditor shall cancel the loan he has made to his fellow Israelite. He shall not require payment from his fellow Israelite or brother, because the Lord’s time for canceling debts has been proclaimed.”

The word “bankruptcy” is generally accepted to have come from the Latin words bancus (bench) and ruptus (broken). When a money changer or banker ran up unpaid debts, his bench in the public marketplace was broken as a symbol that he was out of business.

England passed its first bankruptcy laws in 1542. Early bankruptcy laws allowed the debtor to pay what he could, and the remaining debts were discharged by law. In the New World, the United States Constitution gave the legislature express power to enact “uniform laws on the subject of bankruptcies,” but the first laws were not passed by Congress until 1800. It was quickly repealed in 1803 due to allegations of abuse. During the economic turbulence of the nineteenth century and into the twentieth century, bankruptcy statutes were enacted and repealed as one group cried for financial relief and another group complained of abuse.

Legislation during the Great Depression stabilized our federal bankruptcy laws, in particular the Bankruptcy Act of 1933 and the Bankruptcy Act of 1934. The U.S. Supreme Court declared in 1934 that the primary goal of bankruptcy laws was to offers the “honest but unfortunate debtor” a “fresh start” and “an new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.”

Our bankruptcy laws are constantly changing and evolving, but the concept of debt forgiveness is neither new nor unique. If you need debt relief and a fresh financial start, discuss your situation with an experienced bankruptcy attorney. The federal Bankruptcy Code has several flexible options to get you the relief you need and deserve.


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