In the United States bankruptcies have only been available off and on and under specific conditions since 1800. Before that there were no options for a debtor who could not pay but prison and other punishments. While the first bankruptcy law was put into place in 1800, it was only in response to land speculation and was repealed just 3 years later.
Due to the financial panic in 1837, a second law for bankruptcies was put into place in 1841. But again, it was repealed just 2 years later. Concerns about the implications of bankruptcy as an option continued to prevent bankruptcy laws from being maintained.
Then, the Civil War caused significant economic distress. In response to this situation, Congress passed yet another bankruptcy law, in 1867. 2 years later, as with the first 2 laws, it was repealed. This law had been the first to include corporations, rather than just individual debtors.
Throughout the 1800s, laws enacted for bankruptcies were meant to serve the creditor and to find a way to get the owed money from the debtor. These were involuntary bankruptcies, meaning that they were imposed upon the debtor in arrears, rather than initiated by the debtor. These were punishing laws.
However, during the last 2 years of the century, the Bankruptcy Act of 1898 was put into law, an act which did not focus on punishing the company in debt. Instead, the law was meant to help rehabilitate and reorganize companies in financial distress. The company could be put into “equity receivership” as a protection from creditors.
With the experience of the Great Depression and the universal suffering and financial ruin it caused, lawmakers increased their compassion towards the financially insolvent. Laws were enacted in both 1933 and 1934 with an emphasis on helping the unfortunate but honest debtor obtain a fresh start.