Wednesday, June 17, 2015

Early Bankruptcy Laws in the United States

Colonial Bankruptcy Laws
In the American colonial era, many of the states had bankruptcy and insolvency laws. Imprisonment for debt was commonplace.

Bankruptcy Act of 1800
The first federal bankruptcy law was passed by Congress in 1800, eleven years after the ratification of the United States Constitution. This Bankruptcy Act was designed to be a temporary measure and was repealed after only three years.

This act was virtually a copy of the existing English law, which was the 1732 Statute of George II. The English laws maintained a distinction between "bankruptcy laws" and "involvency" laws. Bankruptcy law generally involved involuntary proceedings against business trader while involvency law addressed concerns of debt relief generally, including the release from debtor's prison.

Bankruptcy Act of 1841
Following the financial Panic of 1837, the Bankruptcy Act of 1841 was passed. It provided for both involuntary and voluntary bankruptcy. This act allowed a person some basic exemptions of property, but state exemptions were not available.  Although the act worked well, creditors considered it a failure and it was repealed in 1843.  The 1841 Act though was important in that it established the allowance of voluntary bankruptcy for all debtors.