Bankruptcy Act of 1800

Last updated

Pamphlet of Bankrupcty act of 1800 Service-rbc-rbpe-rbpe22-rbpe225-22500300-001dq.gif
Pamphlet of Bankrupcty act of 1800

The Bankruptcy Act of 1800 was the first piece of federal legislation in the United States surrounding bankruptcy. The act was passed in response to a decade of periodic financial crises and commercial failures. It was modeled after English practice. The act placed the bankrupt estate under the control of a commissioner chosen by the district judge. The debt would be forgiven if two-thirds of creditors (by both number and dollar amount) agreed to forgive the remaining debt. Only merchants could petition a creditor to file a case under the provisions of the act. [1]

Contents

Before independence, bankruptcy law in the Thirteen Colonies followed English common law. After multiple wars, including the Seven Years' War and the American Revolutionary War, debt became more common not only at a national level but also in personal affairs. With this change came a shift in perspective surrounding debt. Instead of viewing it as a moral flaw, as English policy did, it became known as bad luck or a result of unfortunate events. By setting up a separate system for debtors and creditors, the United States attempted to curb the number of bankrupt citizens being put in jail. The act was meant as a temporary measure with a five-year sunset clause. Congress repealed the act in 1803. [2]

English policy in the Thirteen Colonies

Prior to independence, policies concerning bankruptcy in the Thirteen Colonies followed English common law. In the late eighteenth century, bankruptcy was seen as a moral failure in England. People were expected to keep their affairs in order and any deviance from upright economic standing was considered a personal fault. Individuals who were unable to pay back their debts had their property confiscated and assigned to the creditor, or were imprisoned. [3]

United States policy before the act

After gaining independence from Britain, the United States faced a substantial increase in debt due to the financial strains caused by both the Seven Years' War and the American Revolutionary War. This mounting national debt had destabilizing effects on the economy, leading to increased indebtedness among private citizens. Despite the prevalence of debt, the nation did not entirely discard English financial practices; however, there were often modifications in the agreements between debtors and creditors. [4] [5]

The national debt crisis culminated in the Panic of 1796–1797. The collapse of the land speculation bubble led to the financial ruin and imprisonment of thousands of debtors. Prominent Revolutionary War financier Robert Morris spent three years in a debtor's prison, while Supreme Court justice James Wilson spent his final years on the court evading creditors. Federalists in Congress, acting on behalf of financial groups, argued for a national bankruptcy law to address the crisis, but were opposed by Anti-Federalist and agricultural interests. The resulting Bankruptcy Act of 1800 passed by a single vote in the House of Representatives. [1]

Policy changes

The legislation allowed creditors to initiate bankruptcy proceedings against individuals unable to settle their debts. Once initiated, these bankruptcy cases were referred to district judges, who appointed independent administrators to oversee the cases and facilitate payments and legal processes. If two-thirds of the creditors, both in terms of number and amount owed, agreed to forgive the remaining debt, the debtor would be relieved of the obligation. This framework aimed to assist individuals in managing their debts and introduced a mediator to prevent creditors from hastily resorting to imprisoning debtors. Only merchants were eligible to seek debt forgiveness through this process. [6]

Repeal of the act

Many of the commissioners appointed to oversee the bankruptcies did not keep track of all the information. When President James Monroe asked for a report on how this act had played out, many reported that they had either not kept their paperwork in order or did not have any to begin with. [7] This allowed for a large amount of dishonesty and fraud. Administrators were able to pocket money or use it for other purposes with very little judicial oversight. Many debtors were not able to be released from their creditors even after their cases had been filed. In addition, many bankrupt individuals hid different assets that they owned to keep them from being taken or used to pay back the money that they owed. Those who were not eligible had no chance to work off the money, and even those who were eligible had to hope that their creditor would file the case and be willing to forgive the debt. In totality, many people were further thrust into debt, and the act did not serve the purpose of lowering economic failure for the nation. As a result, Congress repealed the act in 1803, two years before it expired. [2] [8]

See also

Related Research Articles

Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.

Chapter 7 of Title 11 U.S. Code is the bankruptcy code that governs the process of liquidation under the bankruptcy laws of the U.S. In contrast to bankruptcy under Chapter 11 and Chapter 13, which govern the process of reorganization of a debtor, Chapter 7 bankruptcy is the most common form of bankruptcy in the U.S.

Debt relief or debt cancellation is the partial or total forgiveness of debt, or the slowing or stopping of debt growth, owed by individuals, corporations, or nations.

Title 11 of the United States Code sets forth the statutes governing the various types of relief for bankruptcy in the United States. Chapter 13 of the United States Bankruptcy Code provides an individual with the opportunity to propose a plan of reorganization to reorganize their financial affairs while under the bankruptcy court's protection. The purpose of chapter 13 is to enable an individual with a regular source of income to propose a chapter 13 plan that provides for their various classes of creditors. Under chapter 13, the Bankruptcy Court has the power to approve a chapter 13 plan without the approval of creditors as long as it meets the statutory requirements under chapter 13. Chapter 13 plans are usually three to five years in length and may not exceed five years. Chapter 13 is in contrast to the purpose of Chapter 7, which does not provide for a plan of reorganization, but provides for the discharge of certain debt and the liquidation of non-exempt property. A Chapter 13 plan may be looked at as a form of debt consolidation, but a Chapter 13 allows a person to achieve much more than simply consolidating his or her unsecured debt such as credit cards and personal loans. A chapter 13 plan may provide for the four general categories of debt: priority claims, secured claims, priority unsecured claims, and general unsecured claims. Chapter 13 plans are often used to cure arrearages on a mortgage, avoid "underwater" junior mortgages or other liens, pay back taxes over time, or partially repay general unsecured debt. In recent years, some bankruptcy courts have allowed Chapter 13 to be used as a platform to expedite a mortgage modification application.

Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue its operations.

A debtor or debitor is a legal entity that owes a debt to another entity. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor. When the counterpart of this debt arrangement is a bank, the debtor is more often referred to as a borrower.

<span class="mw-page-title-main">Debtors' prison</span> Prison for people unable to repay a debt

A debtors' prison is a prison for people who are unable to pay debt. Until the mid-19th century, debtors' prisons were a common way to deal with unpaid debt in Western Europe. Destitute people who were unable to pay a court-ordered judgment would be incarcerated in these prisons until they had worked off their debt via labour or secured outside funds to pay the balance. The product of their labour went towards both the costs of their incarceration and their accrued debt. Increasing access and lenience throughout the history of bankruptcy law have made prison terms for unaggravated indigence obsolete over most of the world.

<span class="mw-page-title-main">Bankruptcy in the United States</span>

In the United States, bankruptcy is largely governed by federal law, commonly referred to as the "Bankruptcy Code" ("Code"). The United States Constitution authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States". Congress has exercised this authority several times since 1801, including through adoption of the Bankruptcy Reform Act of 1978, as amended, codified in Title 11 of the United States Code and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

In accounting, insolvency is the state of being unable to pay the debts, by a person or company (debtor), at maturity; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency.

<span class="mw-page-title-main">Bankruptcy Abuse Prevention and Consumer Protection Act</span> 2005 American bill

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is a legislative act that made several significant changes to the United States Bankruptcy Code.

A bankruptcy discharge is a court order that releases an individual or business from specific debts and obligations they owe to creditors. In other words, it's a legal process that eliminates the debtor's liability to pay certain types of debts they owe before filing the bankruptcy case.

Bankruptcy in the United Kingdom is divided into separate local regimes for England and Wales, for Northern Ireland, and for Scotland. There is also a UK insolvency law which applies across the United Kingdom, since bankruptcy refers only to insolvency of individuals and partnerships. Other procedures, for example administration and liquidation, apply to insolvent companies. However, the term 'bankruptcy' is often used when referring to insolvent companies in the general media.

An individual voluntary arrangement (IVA) is a formal alternative in England and Wales for individuals wishing to avoid bankruptcy. In Scotland, the equivalent statutory debt solution is known as a protected trust deed.

Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. In most cases personal bankruptcy is initiated by the bankrupt individual. Bankruptcy is a legal process that discharges most debts, but has the disadvantage of making it more difficult for an individual to borrow in the future. To avoid the negative impacts of personal bankruptcy, individuals in debt have a number of bankruptcy alternatives.

The Panic of 1796–1797 was a series of downturns in credit markets in both Great Britain and the newly established United States in 1796 that led to broader commercial downturns. In the United States, problems first emerged when a land speculation bubble burst in 1796. The crisis deepened when the Bank of England suspended specie payments on February 25, 1797 under the Bank Restriction Act 1797. The bank's directors feared insolvency when English account holders, who were nervous about a possible French invasion, began withdrawing their deposits in sterling rather than bank notes. In combination with the unfolding collapse of the U.S. real estate market's speculative bubble, the Bank of England's action had deflationary repercussions in the financial and commercial markets of the coastal United States and the Caribbean at the start of the 19th century.

Toibb v. Radloff, 501 U.S. 157 (1991), was a case in which the United States Supreme Court held that individuals are eligible to file for relief under the reorganization provisions of chapter 11 of the United States Bankruptcy Code, even if they are not engaged in a business. The case overturned the lower courts ruling which restricted individuals to chapter 7.

The history of bankruptcy law in the United States refers primarily to a series of acts of Congress regarding the nature of bankruptcy. As the legal regime for bankruptcy in the United States developed, it moved from a system which viewed bankruptcy as a quasi-criminal act, to one focused on solving and repaying debts for people and businesses suffering heavy losses.

The history of bankruptcy law begins with the first legal remedies available for recovery of debts. Bankruptcy is the legal status of a legal person unable to repay debts.

Bankruptcy in Irish Law is a legal process, supervised by the High Court whereby the assets of a personal debtor are realised and distributed amongst his or her creditors in cases where the debtor is unable or unwilling to pay his debts.

<span class="mw-page-title-main">British Virgin Islands bankruptcy law</span>

British Virgin Islands bankruptcy law is principally codified in the Insolvency Act, 2003, and to a lesser degree in the Insolvency Rules, 2005. Most of the emphasis of bankruptcy law in the British Virgin Islands relates to corporate insolvency rather than personal bankruptcy. As an offshore financial centre, the British Virgin Islands has many times more resident companies than citizens, and accordingly the courts spend more time dealing with corporate insolvency and reorganisation.

References

  1. 1 2 Tabb, Charles Jordan (1995). "The History of the Bankruptcy Laws in the United States" (PDF). ABI Law Review. 3 (5): 14–15. Archived from the original (PDF) on August 15, 2017. Retrieved December 27, 2017.
  2. 1 2 "The Evolution of U.S. Bankruptcy Law: a timeline" (PDF). Federal Judicial Center. Retrieved December 27, 2017.
  3. ↑ Mann, Bruce H. (2002). Republic of Debtors: Bankruptcy in the Age of American Independence. Harvard University Press. ISBN   9780674009028.
  4. ↑ Calloway, Colin Gordon (2006). The scratch of a pen: 1763 and the transformation of North America. Pivotal moments in American history. Oxford: Oxford University Press. ISBN   978-0-19-530071-0.
  5. ↑ Olson, James S. (2015). American Economic History: A Dictionary and Chronology.[ page needed ]
  6. ↑ Levin, Elliot D. (2007). "A Short History of American Bankruptcy Law in 1800s". University of Oklahoma Law Journal Library.[ full citation needed ]
  7. ↑ Monroe, James (1822). "Message from the President of the United States, transmitting a report of the Secretary of State, made in pursuance to a resolution of the House of Representatives, of the 8th inst. in relation to cases of bankruptcy".[ full citation needed ]
  8. ↑ Haynes, David (April 25, 2022). "Victorian era bankruptcy". The Balance.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.