During the 1980s and 1990s, bankruptcy became a relatively common practice among individuals and businesses. Courts were flooded with bankruptcy cases and it became apparent that the bankruptcy was all too often being used as an easy way out. Many very large companies declared bankruptcy including Greyhound, Continental Airlines, and Pan Am. For the most part these were Chapter 11 reorganizations.
Because of the excessive number of cases however, pre-packaged bankruptcies became the practice, in which companies came to bankruptcy court having already agreed on certain terms with all its creditors. This saved time and helped bankruptcy courts keep up with the cases.
Still, President Clinton signed the Bankruptcy Reform Act of 1994 into law, to further expedite bankruptcy proceedings and to encourage the use of Chapter 13 bankruptcies for individuals, rather than the “all debts forgiven” practice of Chapter 7. This act also established the National Bankruptcy Review Commission.
After extensive study, in 1997, this commission published a detailed report on the uses and misuses of bankruptcy in the United States. This helped lead to the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA), signed by President George W. Bush.
This act helped curb the bankruptcy mills that taught individuals how to finagle the system to get a bankruptcy they didn’t really qualify for. It insisted that Americans who have something to pay will pay something to their debtors. But it also provided for those under median income who are not required to pay back their debts. Finally, bankruptcy use would be limited to every 8 years for Chapter 7, so people cannot keep racking up debt and filing bankruptcy.
The U.S. has a bankruptcy history going back to 1800, but it has taken until the most recent years for individuals and companies that are genuinely struggling to be able to apply for protection from creditors and be relieved of their burdensome debts.