Bankruptcy Introduction & General Information

Throughout history, honest and hard-working people have sometimes found themselves unable to pay financial obligations. Past generations faced their own versions of financial obligations. The roots of bankruptcy as we know it can be traced to ancient civilizations, through the centuries to the days of the founding of our nation and on to the present day.

In ancient times, if you owed money that you could not pay, the consequences were very drastic. In 450 BC, the Roman Law of the Twelve Tables provided a fairly persuasive method for dealing with individuals who did not appear to be able to pay their debts when they fell due.
First, the debtor was given 30 days to pay, or find someone else to pay for him. If payment is not made, then the creditor could fasten him in stocks or fetters with not less than fifteen pounds of weight. Three market days later, the creditors were entitled to divide the debtor's body amongst them. Roman law was careful to clarify that "if they cut more or less than each one's share it shall be no crime".

Roman law eventually evolved, but not by much. The Roman debtor no longer had to worry about being cut up into proportionate pieces but instead, should he become insolvent, was merely imprisoned for life or, at his creditors option, sold, along with his wife and children, to perpetual foreign slavery.

In the era of Charlemagne, if a debtor transferred everything he owned to his creditors, he could escape imprisonment and in any event, while imprisonment continued as an option, torture was outlawed as a response to debt

The word bankruptcy came from an Italian phrase 'banca ratta', of which the literal translation means broken bench or table. In medieval times, if a merchant failed to repay his debts, the creditor would come and break the table that the merchant used to conduct business in the marketplace.

The concept and origin of bankruptcy law as it is now known in the United States originated in England. The first English bankruptcy law is generally agreed to have been enacted in 1542. Bankruptcy then was originally planned as a remedy for creditors - not debtors. During the reign of King Henry VIII, bankruptcy law allowed a creditor to seize all of the assets of a trader who could not pay his debts. Additionally, on top of losing all of one's property, the unfortunate debtor also lost his freedom and was subject to imprisonment for failure to pay his debts. This left the family of the debtor in the position of having to pay the debts in order to obtain the release of the debtor.

America's Bankruptcy laws are more similar to the Biblical concept of Bankruptcy than other ancient forms because of it's emphasis on a fresh start. We know from Deuteronomy, that in Biblical times, debts were to be forgiven and slaves were to be released every 7 years.

"At the end of every seven years, you are the cancel the debts of those who owe you money. This is how it is done. Everyone who has lent money to his neighbor is to cancel the debt; he must not try to collect the money; the Lord himself has declared the debt canceled." -- Deuteronomy 15:1-2.

"If a Hebrew man or Hebrew woman was sold to you and has served you for six years, in the seventh year you must set him or her free, released into a free life. And when you set them free don't send them off empty-handed. Provide them with some animals, plenty of bread and wine and oil. Load them with provisions from all the blessings with which God, your God, has blessed you (Deuteronomy 15:12-14).

Similar references can also be found in the Gospels of Luke and Matthew.

During our nation's early days, our founding forefathers considered bankruptcy to be so important that they included it as part of the Constitution. In Article 1 of the US Constitution, the Founding Fathers directed the Congress of the United States to make uniform bankruptcy laws.

The Constitutional Framers knew that many civilizations older than America had thriving economies, and Bankruptcy laws were a part of the reason. The Framers knew that if America was also to thrive economically, it would need laws that would allow financially distressed people to cancel their debts and get a fresh start rather than spend their lives distracted, worried and enslaved to past financial mistakes.

Most of the Framers were not wealthy (most wealthy families were still loyal to England). In fact eight of the Forefathers (Thomas Jefferson, Fitzsimons, Gorham, Luther Martin, Mifflin, Robert Morris, Pierce, and Wilson) suffered serious financial problems that left them in or near bankruptcy. Thomas Jefferson was deeply in debt throughout most of his life because of family obligations, poor investments and the economic crisis of 1819 - a common scenario for Americans today.

Bankruptcy in America is intended to provide protection to people who need it, without shame or fear, but in an orderly manner spelled out by law

Call to schedule a consultation with Jon D. Lydell to discuss Chapter 7 or Chapter 13 bankruptcy, and how to rebuild your credit for a strong financial future.