Bankruptcy gives every American the ability to discharge unpayable debts and avoid crushing financial burdens. Before it was developed, struggling borrowers in Europe were treated like criminals, with many thrown in prison or sentenced to death. While at first bankruptcy was a tool to support creditors, over time, it became a vital lifeline for borrowers who needed a fresh start.

The History of Bankruptcy in the US

The First Bankruptcy Laws

The framers considered bankruptcy so important that they specifically included it in the Constitution. However, Congress didn’t use the power to create bankruptcy law until 1800. This law, modeled after those in England, could only be used by merchants and made bankruptcy an involuntary process. Because the first law made no allowances for individual families and created a system rife with corruption, Congress repealed the act after just three years.

The Next Attempt at Bankruptcy Law

After a financial panic in 1837, Congress introduced a new set of bankruptcy laws, which went into effect in 1841. This legislation took a revolutionary approach, giving individual borrowers the right to initiate bankruptcy for themselves. Unfortunately, lenders complained that they were forgiving too many debts, so again the law was repealed after only a couple of years.

The Bankruptcy Act of 1898

After trying again after the Civil War, Congress finally enacted a bankruptcy law that endures to this day. The Bankruptcy Act of 1898 included many provisions designed to protect struggling borrowers and companies. Although it has been updated and revised several times in the years since, this legislation represents the foundation of modern American bankruptcy code.

Bankruptcy Reforms of 1978

In 1978, Congress again dramatically overhauled the bankruptcy code, introducing the system in use today. These reforms introduced chapter 13 bankruptcy, which allows borrowers to make up missed payments on secured debts. Generally, chapter 13 made it easier for both individuals and businesses to get the financial relief they need.

If you’re struggling to keep your head above water, Pearce Law Firm will help you get your finances back on solid ground. Their bankruptcy attorneys have over 15 years of experience helping borrowers throughout the Foley, AL, area reclaim their lives from debt and get the second chance everyone deserves. Visit their website for more on their debt relief services, or call (251) 971-2676 to explore your options with a skilled attorney.