Did you know that the very first U.S. bankruptcy law was enacted approximately a mere decade after the ratification of the U.S. Constitution? It was eventually repealed and new laws grew from its humble origins. However, the concept of bankruptcy is certainly not a young idea as it has been around for centuries prior to the birth of the U.S.
In this article, we’ll go over a quick history of bankruptcies and what place they currently hold in federal law today.
The Beginning History of Bankruptcies
There are a few theories as to where the term bankruptcy itself came from. One of which is of Latin origin, combining the two words for broken and bench. In this scenario, the process of banking referred to conducting business from a bench. It was thought to have been practiced frequently in Italy, where public bankers conducted their financial and business transactions publically from a bench.
When a banker was no longer able to conduct business accordingly, their bench was then broken. This indicated to the public that they were no longer fit for business, hence the broken bench. How does one say broken bench in Latin? Bancus ruptus.
Around the World
At the outset, the connotations of bankruptcies were negative. In the U.S., bankruptcy legislation was generally a response to poor economic conditions. Everything from overbearing land speculation to war prompted various bankruptcy laws, many of which were repealed.
Other countries had their own variety of bankruptcy laws as well. For example, England saw its first bankruptcy laws passed under Henry the Eighth during the 16th century. At that time, bankrupted citizens were considered criminals. However, in places like Spain, the entire nation was able to declare bankruptcy around the 17th century.
Around the 19th century, a common way that courts dealt with unpaid debt was the utilization of debtors’ prisons. Debt was then paid off via labor or outside funds.
The various bankruptcy laws that have since been enacted are numerous and encompass a variety of ways in which debt is repaid or liquidated. Today, bankruptcy isn’t considered a criminal act. Rather, bankruptcy laws today are in place to help rehabilitate debtors with burdensome debt to get back on their feet.
One particular U.S. bankruptcy reform law was put into place in the mid-90s, encouraging debtors to reschedule debts if possible. This helped debtors avoid liquidating entirely and work at a way to reorganize debts into a determined payment plan.
Types of Bankruptcies
There are 6 existing chapters of bankruptcy law that exist within the bankruptcy system today:
- Chapter 7
- Chapter 9
- Chapter 11
- Chapter 12
- Chapter 13
- Chapter 15
These types of bankruptcies deal with everything from personal property to municipal bankruptcy filings. There are many common reasons for filing any of the above, such as unemployment or mounting debt. Luckily, there are companies such as SellersAdvantage that are available for those who need help in selling their assets as part of a bankruptcy journey.
The history of bankruptcies comes from a long and winding road. Countries around the world all have various laws encompassing how to deal with outstanding debt. Bankruptcy today allows debtors a way to organize and deal with their finances and reestablish a solid, financial plan.
If you’re interested in additional financial knowledge, be sure to browse through any of the articles we offer in our finance section to continue learning!