The Interesting History and Present Day Status of Bankruptcy
Posted on: 24 February 2015
With the invention of public marketplace came currency and also debt. People have long struggled with what to do about persons who have changes in circumstances and an accumulation of debts they are no longer able to satisfy. This is a very brief history of the notion of bankruptcy and what it means for people today.
Where the Word Bankruptcy Comes From
The word bankruptcy probably comes from two latin words: bancus which means bench or table and ruptus which means broken. Bankers in ancient times conducted their business from a bench in the public market, and when they weren't able to meet their obligations, they would break the bench (and presumably leave for parts unknown).
Another version of the possible origin is that workmen or merchants would have their work benches broken by others when they couldn't pay their debts, and until they satisfied their obligations, no one was allowed to do business with them.
Bankruptcy in History
Back in the early biblical times, when people could not pay their debts, they and their families were made slaves to work off the debt. When Moses was giving the law to the Jewish nation, he proclaimed that slaves should be set free every seven years, and also on the fiftieth year which was called the Jubilee. Other ancient societies also had similar laws about the length one could keep a debtor as a slave and about the treatment of said slave (and their family members).
Bankruptcy as a state sanctioned legal procedure in the English speaking world has been in use since 1542 CE (during the reign of King Henry XIII), but debtors at that time were thrown in a debtor's prison, or even executed.
In the 1800s, US bankruptcy was an involuntary legal procedure that favored creditors, but debtors would get some small relief by cooperating with it.
Bankruptcy In Recent History
The idea that bankruptcy should be a chance for a debtor to get a fresh start came into being in the early 1930s with a series of new legislation.
In the Local Loan v. Hunt case in 1934, the Supreme Court commented on how unrelieved excessive debt would
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Reduce a person and his dependents to being paupers without the means to take care of themselves adequately,
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Interfere with the idea of personal liberty
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Not be in the public's best interests ultimately
The ruling said that "honest but unfortunate debtors should be afforded a new opportunity in life and a clear field for future effort," and that they should not be hampered with the pressures of past debts.
Bankruptcy Today
Today there are two types of bankruptcy actions commonly available to private persons, which are chapter 7 and chapter 13. Both types put a temporary halt to any legal action by creditors, and this includes garnishments, foreclosures, and repossessions.
Chapter 13 is a reorganization type that allows a person to pay off their debts in 3–5 years, and is used by people who have assets such as a house and a vehicle, or a business, that they want to keep. Also, if they have an income that is above the legal limit for chapter 7, chapter 13 is an option. A trustee will be assigned to their case, and any discretionary income above the normal amount needed for normal living expenses would be paid to the trustee to satisfy creditors on a monthly basis.
If the debtor cooperates faithfully with the arrangement, any remaining debt at the end of the time period will be discharged.
Chapter 7, also called a liquidation bankruptcy, allows a debtor to discharge unsecured consumer debt with the resolution of their case. Some assets made be sold by the bankruptcy trustee to satisfy creditors, however. Creditors who own any secured debts may be able to take items that are considered collateral.
Every state has exemptions (there is also a federal list that may be used in certain states) that a debtor can use to keep a certain amount of money and necessary assets to keep on living. There are cases where a debtor can reaffirm debts in order to keep a personal vehicle or a home.
Legal Advice for Handling Overwhelming Debt
If you are considering bankruptcy, do not hesitate to talk to a bankruptcy lawyer like Reppe Law Office. Consultations are usually free and the precise legal advice given for your circumstances can help you to make informed decisions. If you are threatened with foreclosure or repossession, it is important to act before these actions take place.
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