March 4, 2010

Bankruptcy, You’ve Been Around!

Posted in Bankruptcy tagged at 10:03 pm by demetriagraves

Recently, I’ve been helping an increasing number of clients with bankruptcy. Even though this can be a painful experience, having the right attorney to guide you through the process is vital. In light of this, I thought it would be interesting to take a look at the history of bankruptcy, to give the subject of bankruptcy its proper perspective. It may be difficult to consider bankruptcy now but history clearly shows that it could be a lot worse.

There are references to the forgiving of debt in the Bible. In the book of Deuteronomy, Chapter 15, Verses 1-2, Mosses brings home God’s law from the mountain with the burning bush to the Israelites and counsels them to forgive debts every seven years.  Amazingly he also describes a system of redemption after foreclosure that is very similar to laws in effect today.

Bankruptcy has been around for thousands of years. The Roman’s have the first written history on the subject.  The word “bankruptcy” is believed to originate from ancient Latin verbiage describing a “broken bench,” bancus, the tradesman’s counter, and ruptus, broken, denoting one whose place business was broke or gone.  A tradesman in the square who could not pay creditors’ claims literally had his bench broken so he could no longer work and then he was often sold into slavery, especially if there was no one else who would pay his debts. Roman Law made allowances for the debtor’s estate to be sequestered and sold for the benefit of any creditors. Proceedings of this type caused a loss of civil rights, this is what made it okay to be sold into slavery. Luckily times have changed.

During Europe’s Middle Ages debtors, both men and women, were locked up together in a single large cell, until their families paid their debt. Debt prisoners often died of disease contracted from other debt prisoners. Conditions included starvation and abuse from other prisoners. If the father of a family was imprisoned for debt, the family business often suffered while the mother and children fell into poverty. Unable to pay the debt, the father often remained in debtors’ prison for many years. Some debt prisoners were released to become serfs or indentured servants, until they paid off their debt in labor. This was known as debt bondage.

Any one who has read Charles Dickens work has heard of Debtor’s prison, as they feature in many of his works. Charles Dickens’ own father was sent to one of these prisons (Marshalsea Prison) and Charles spent the early years of his life in the Marshalsea. He was also sent to the work-house as a child to help support the family. Prior to the mid 19th century debtors’ prisons were a common way to deal with unpaid debt.

In 1833 the practice of imprisonment for debts was eliminated at the federal level in the United States.  Most States followed suit. Today, it is still possible to be thrown into or remain in jail for debt.  Debts of fraud, child-support, alimony, or release fines can land you in jail or prevent you from being released from it. Early United States bankruptcy law required a certain percentage of debt be repaid in order to gain a discharge.  Fortunately both concepts are past.

The current federal law, which is referred to as the Bankruptcy Code, replaced the Bankruptcy Act in 1979.  “The Act” originated in 1898, as the Chandler Act, and became the Wagner Act after depression era amendments. There have been several amendments to the current Bankruptcy Code since 1979. The largest amendment to the Bankruptcy Code, enactment became effective on October 17th, 2005.  This remarkable bit of legislation took Congress over 500 pages of print and affects all cases filed after the effective date.

Since 1996, over one million people a year have voluntarily filed for bankruptcy protection in the United States. Bankruptcies of giant corporations and wealthy celebrities regularly appear in the news. Current bankruptcy law in the U.S. is widely regarded as being more pro-debtor than the laws of other developed countries. U.S. law provides individuals generous exemptions and relatively easy discharge of debts. It also leaves the managers of bankrupt businesses in control of their firms and gives them the first chance to form a reorganization plan.

Often, people feel there is a stigma attached to bankruptcy. In light of its history this is understandable, though these days it’s clearly outdated and most people recover from bankruptcy relatively unscathed. To go through a bankruptcy with the best chance for a fast recovery it’s important that you have the right legal advice. Bankruptcy is one of my specialties and I offer a free confidential initial consultation to discuss your options and answer all you questions.

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