How Did Bankruptcy Start?
This is one of the most common bankruptcy questions. Bankruptcy was created by Congress to give good people a chance to repay or wipe out their debts through a court proceeding and get a fresh start. The history of bankruptcy dates all the way back to the Old Testament of the Bible. It states in Deuteronomy 15:1-2 “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 is made to his fellow Israelite. He shall not require payment from his brother, because the Lord’s time for canceling debt has been proclaimed.” This is where the seven years before being able to re-file in a bankruptcy filing comes from. In 2005, Congress amended the bankruptcy code and changed it to eight years before a person could file Chapter 7 bankruptcy again. Originally, in the United States the early bankruptcy laws were created as a response to horrible economic conditions. The bankruptcy law was enacted by Congress in 1800 and repealed in 1803. Bankruptcy filing was then reenacted in 1841 and once again repealed in 1843. When the civil war began the United States was under economic upheaval that would force Congress to pass another bankruptcy law in 1867. All of these laws included a bankruptcy discharge for unpaid debts. In 1867 the bankruptcy code included the protection of corporations.
Prior to the 1900s, a bankruptcy filing traditionally favored the creditor more than the debtor. The idea of filing bankruptcy was more on the side of recovering the creditor’s investments and property then giving the debtor a second chance through a bankruptcy discharge. Over the last hundred years, the bankruptcy laws have more of an emphasis on helping debtors reorganize or restructure. After the Great Depression, Congress enacted the bankruptcy act of 1933 and 1934 that showed the primary goal of the debtor filing for bankruptcy was to get a fresh start from a financial burden.
Since the Depression, there have been many changes to the bankruptcy code with the biggest changes being made in 2005. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was signed into law by Pres. George W. Bush. The new law was created to stop abusive bankruptcy filings. The idea was to have debtors that had the ability to pay back a portion of their debts to be forced into Chapter 13 bankruptcy, instead of filing Chapter 7 bankruptcy and having all their debts wiped out. They increased the amount of time for a person filing Chapter 7 bankruptcy from seven years to eight years before they can file again. The debtor was also required to pass a means test where the debtor’s income had to be lower than the median income of the state they reside in.
Getting answers to those tough bankruptcy questions needs to be thought of before you make a decision when it comes to your financial problems. Finding the answers to help you understand your situation more clearly can help you make an informed decision about filing bankruptcy. Take a minute to call or fill out the form to have a FREE NO OBLIGATION CONSULTATION with a bankruptcy attorney in your area.