History of Bankruptcy (Part One)

This post is part one of two and covers primarily the ancient history of Bankruptcy.  This is an excerpt from my Book "Should I File: A Definitive Guide to Bankruptcy" If you find the information on this site useful please consider purchasing my book which covers the material on this site in more detail.  It is full of examples and case studies which will aid you in developing a more complete understanding of the issues involved in Bankruptcy. 

A long long time ago:

Before the modern era there was no official bankruptcy law.  In many cases, failure to pay your debts resulted in debtor’s prison, slavery or even death.   Even after the idea of bankruptcy came about the consequence of bankruptcy was often imprisonment or death.  Genghis Kahn for example is said to have included a provision in his Bankruptcy law that mandated the death penalty to anyone who became bankrupt three times.  And while it may seem that the modern consequences of Bankruptcy are bad you can be assured that they will not include death.  

Many of the world’s major religions have mechanisms built in to alleviate or even eliminate debt.  These mechanisms are found in the Bible, the Torah, and the Qur’an.  The Torah and the Old Testament included a year of Jubilee when most or all debts were forgiven.  This concept forms the basis of modern day chapter 7 bankruptcy where the debtor’s debts are forgiven often completely. 

The second chapter of the Qur’an (Sura Al-Baqara) Verse 280 states that “…if someone is in hardship, then let there be postponement until a time of ease.”  This statement resembles modern day chapter 13 bankruptcy where debtors propose a plan to repay their debts on a schedule that it more affordable than the current schedule. 

 Modern bankruptcy first leapt on to the scene in Britain with the Bankruptcy act of 1542 (34 and 35, Henry VIII, c.4).  In the United States of the first acts of the Federal Government was to create bankruptcy protection.  In fact, the power to regulate Bankruptcy in the United States was granted by the Constitution when it was ratified in 1789.  In Article I, Section 8, Clause 4, Congress was granted the power to legislate “uniform laws on the subject of Bankruptcies” throughout the several States.