Life is full of ups and downs and many unexpected surprises. Debts can begin piling up due to hospital bills, car payments, mortgages, and so much more. It can be overwhelming and difficult to escape. To try and alleviate the pressure caused by mounting debt, some people opt to file for bankruptcy.
Bankruptcy in the United States has had a long and interesting history. The framers of the United States Constitution had wanted to model their bankruptcy laws on English common law, but it didn’t take long for the law to change and evolve.
What is Bankruptcy?
Bankruptcy is a legal procedure that relieves individuals and businesses from debts while also assisting creditors to receive payment for money owed. While it offers those who file a fresh start, bankruptcy can remain on your credit report for up to 10 years. The rules for bankruptcy are outlined in the United States Bankruptcy Code overseen by federal courts.
There are several chapters of the bankruptcy code and two of the most common are Chapter 7 and Chapter 11.
Chapter 7 – Chapter 7 bankruptcy allows individuals to get rid of unsecured debts, such as medical bills or credit card bills by letting them sell off assets. Any individuals without valuable assets may not have to repay their unsecured debt.
Chapter 11 – Chapter 11 bankruptcy is often filed by businesses to reorganize their debts and create plans that will allow them to become profitable again. Debt repayment plans are set up and placed under court supervision. There have been rare occasions where individuals have been able to file for Chapter 11.
The History of Bankruptcy
Bankruptcy law in the United States was first established in 1787 in Article I, section 8, clause 4 of the US Constitution. It gave Congress the power to “establish… uniform Laws on the subject of Bankruptcies throughout the United States.” The Bankruptcy Act of 1800 became the first federal law relating to bankruptcy. The law was creditor-oriented, was permitted only for involuntary bankruptcies of merchants who were in debt at the time. After many complaints of corruption and favoritism, the law was repealed after just three years.
The Bankruptcy Act of 1841 brought many changes to bankruptcy law in the United States. This new law allowed individuals to file as well as merchants. The debtors were also allowed to voluntarily file for bankruptcy and receive a discharge of the debt. The United States District Courts had the power to judge and grant the discharge relating to bankruptcy as well. Creditors were unhappy with the new law believing that it didn’t provide them with enough payments and discharged too much debt. The law was repealed in 1843. Its successor, the Bankruptcy Act of 1867, was repealed for similar reasons.
In 1898, Congress passed a nation-wide comprehensive bankruptcy law that lasted until Congress passed the Bankruptcy Reform Act of 1978. The law brought the Bankruptcy Code into effect and increased the scope of the power of bankruptcy judges.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 introduced the Means Test which determines if an individual debtor qualifies for Chapter 7 or if they need to file for Chapter 13. The law also introduced mandatory credit counseling and debtor education classes for filers.
Famous Bankruptcies in American History
President Abraham Lincoln – The 16th President of the United States left behind a lasting political legacy. Years before being voted into his presidency Lincoln had been a failed businessman who filed for bankruptcy on two separate occasions. It took him seventeen years to pay off his debts.
President Ulysses S Grant – After serving two terms as the 18th President of the United States, Grant fell victim to a pyramid scheme that left him broke. He filed for bankruptcy and was able to pay off his debts before passing away in 1885.
Larry King – The famous broadcaster’s lavish tastes caught up to him when he filed for bankruptcy in 1978. He had struggled to manage his finances responsibly, leaving him with massive amounts of debt. King was able to rebound remarkably and currently has a net worth of around $150 million.
Trust the Bankruptcy Experts at Rulon T Burton & Associates
If you’re considering filing for bankruptcy, know that it is not uncommon and in many ways is a necessary stepping stone to a better future. Contact the law team at Rulon T Burton & Associates today. We have been able to assist clients filing for Chapter 7 and 13 bankruptcy in Utah since 1981. Our dedicated team can walk you through your bankruptcy filing from beginning to end to ensure that you are well taken care of. To schedule your consultation call 801-305-3702.