Bankruptcy proceedings were commonplace during the Middle Ages, and also included a selling of assets to relieve debts. The U. The Bankruptcy Act of was replaced by the Bankruptcy Act, which allowed -- for the first time -- a debtor to file bankruptcy voluntarily and receive a discharge. In addition, the protections were extended not only to merchants, but to all people. The Bankruptcy Act of allowed bankruptcy filers to choose whether to follow state or federal exemption guidelines. And the Chandler Act of , which zeroed in on large corporate bankruptcy proceedings, was built upon the National Bankruptcy Act of , when Congress passed the first permanent law governing bankruptcy.
Known as the Bankruptcy Code, it created bankruptcy courts and, notably, no longer allowed student loans to be discharged [source: Federal Judicial Center ]. Essentially, the act made it harder to file for bankruptcy by increasing the complexity of the law, as well as the fees and amount of paperwork required when filing. It made it more difficult to have debts wiped clean and to file for bankruptcy more than once.
It took more than ten years after the Constitution was ratified before Congress brought up the issue of bankruptcy. In the meantime, several states had established their own very extensive bankruptcy systems in the absence of a countrywide uniform framework. In fact, many of these systems were very pro-creditor and provided for the imprisonment of debtors!
It wasn't until under federal law and for certain states until before the debtor's prisons were formally abolished. In , Congress passed the first federal law relating to bankruptcy, called the Bankruptcy Act of Similar to many state bankruptcy systems at the time, the Bankruptcy Act of was very creditor-oriented and only permitted involuntary bankruptcies of merchant debtors. There were no provisions for individuals to file on their own.
Some crafty debtors figured out that they could ask a friendly creditor to initiate the bankruptcy case. However, due to many complaints of corruption and favoritism, the law was repealed just three years later. After the financial panic of , Congress passed another bankruptcy law, called the Bankruptcy Act of For the first time, this bankruptcy law permitted debtors to file their own voluntary bankruptcies without a creditor to initiate it.
This was a revolution in insolvency law. In fact, a debtor could file for bankruptcy and receive a discharge of debt. In addition, any individual could be a debtor, not just a merchant as under the law. The power to grant the discharge and judge other matters relating to bankruptcy rested with the United States District Courts.
Unfortunately, however, creditors viewed the law as providing few payments to creditors and discharging too much debt for too many debtors. Accordingly, the law was repealed in After another financial panic and the U. The Act was very detailed and covered a variety of situations. This law was the first to allow involuntary bankruptcies for any individual, not just merchants.
The United States District Courts were required to appoint a "register in bankruptcy" in the performance of duties relating to bankruptcies. The registers were essentially the earliest bankruptcy judges.
A chapter 13 debtor may only have to appear before the bankruptcy judge at a plan confirmation hearing. Usually, the only formal proceeding at which a debtor must appear is the meeting of creditors, which is usually held at the offices of the U. This meeting is informally called a " meeting" because section of the Bankruptcy Code requires that the debtor attend this meeting so that creditors can question the debtor about debts and property.
A fundamental goal of the federal bankruptcy laws enacted by Congress is to give debtors a financial "fresh start" from burdensome debts. The Supreme Court made this point about the purpose of the bankruptcy law in a decision:.
Local Loan Co. Hunt , U. This goal is accomplished through the bankruptcy discharge, which releases debtors from personal liability from specific debts and prohibits creditors from ever taking any action against the debtor to collect those debts.
This publication describes the bankruptcy discharge in a question and answer format, discussing the timing of the discharge, the scope of the discharge what debts are discharged and what debts are not discharged , objections to discharge, and revocation of the discharge.
It also describes what a debtor can do if a creditor attempts to collect a discharged debt after the bankruptcy case is concluded. Six basic types of bankruptcy cases are provided for under the Bankruptcy Code, each of which is discussed in this publication. The cases are traditionally given the names of the chapters that describe them.
Chapter 7 , entitled Liquidation, contemplates an orderly, court-supervised procedure by which a trustee takes over the assets of the debtor's estate, reduces them to cash, and makes distributions to creditors, subject to the debtor's right to retain certain exempt property and the rights of secured creditors.
Because there is usually little or no nonexempt property in most chapter 7 cases, there may not be an actual liquidation of the debtor's assets. These cases are called "no-asset cases. In most chapter 7 cases, if the debtor is an individual, he or she receives a discharge that releases him or her from personal liability for certain dischargeable debts.
For centuries in ancient Greece, if an individual was unable to pay his debts then he, along with his wife, children and servants could be forced into servitude as debt slaves of the creditor until the debt was paid off. As more and more ancient Athenians became debt slaves to their fellow Athenians, however, unrest rose to such a level that in BCE significant concessions were made to the demos people including discharge of debts and the abolition of debt slavery.
Perhaps due to their Puritanical religious beliefs, the early American colonists were likewise contemptuous of, rather than sympathetic to, the economic plight of their community members who could not repay their debts. Only involuntary, creditor-initiated bankruptcy was provided for under the law, and debtor prisons continued to exist in England until the 20 th century. By , the number had dwindled to about It would be unthinkable today, of course, for the vast majority of Americans to purchase a home, a car, or any other major purchase for cash, but while today nearly every commercial transaction may be financed on credit, personal credit was not widely available to the average person in ancient Greece, Rome or even in 18th Century England.
After the American Revolution, the framers of the U. Nevertheless, despite the fact that the Constitution specifically granted Congress the power to establish a federal bankruptcy law, it did not do so until the first Bankruptcy Act of , which applied only to merchants, was enacted in response to major financial panics arising in and as a result of speculation. In those days, as bankruptcies were involuntary, there were no consumer bankruptcy attorneys as we have today to advocate for debtors.
Wilson, who was the first law professor at the College of Pennsylvania and appointed to the U. The Act was not intended to be permanent, but rather a short-term fix. Though it was set to expire in five years, Congress repealed it in Two more temporary bankruptcy acts were later passed in and in The Bankruptcy Act of was again enacted in response to a financial crisis and it lasted less than two years.
It did show shifting aims in public policy, however, in that for the first time American bankruptcy law provided for voluntary petitions by non-merchant debtors themselves. The Bankruptcy Act of was again a reaction to economic crisis, this time brought about in the aftermath of the Civil War.
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