The process of Bankruptcy.

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Research Paper

Bankruptcy

November 25, 2005

The process of Bankruptcy was put in to place in order to assist corporations and individuals the opportunity to discharge from unpaid debts. This research paper will discuss the history of bankruptcy and the new laws that changed the status of filing bankruptcy.

The first identified bankruptcy law was passed in England in 1542 in order to give creditors a solution (other than imprisonment) against debtors who did not pay their bills. Under this law debtors were considered “quasi criminals” (Skeel)

In 1570, England passed a second bankruptcy law that indicated the following:

  • Only a creditor could instigate a bankruptcy case, basically bankruptcy was involuntary for the debtor.
  • Only a merchant could be a debtor. (Ordinary people were being thrown in jail)
  • During the bankruptcy a commissioner seized the bankruptcy assets, sold and distributed them pro rata to the creditors.
  • At the end of the case, the debtor did not obtain a discharge of the balance; therefore creditor could continue their collection efforts. (History of Bankruptcy)

In the next 100 years Parliament made many changes to this bankruptcy law, more so to let the commissioner take more of the bankrupt’s assets and to increase penalties for noncompliance. A 1604 amendment allowed the debtor’s ear to be cut off. (Skeel)

In 1705, Parliament then made some major changes:

  • A cooperative bankrupt could receive a discharge of the unpaid balance of their debts.
  • A cooperative bankrupt would be entitled to keep certain property
  • An uncooperative bankrupt who was defrauding his creditors could be put to death, although records show that only five debt were put to death during the 115 years this provision existed. (History of Bankruptcy)

In the early independent America had no bankruptcy laws. Neither the Articles of Confederation nor the U.S. Constitution contained specific provisions for bankruptcy.  Even though the Constitution gave Congress the power to establish uniform bankruptcy laws. (Skeel)

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In the 1800, by one vote, Congress passed the first American bankruptcy law. It was similar to the 1705 British law, however a fraudulent bankruptcy was not punishable by sentencing individuals to death. It was repealed three years later. (Skeel)

Congress attempted again in 1841, after the abolishment of debtor’s prison. The new act allowed both merchant and non-merchant debt Debtors could claim basic exemptions, although there were limits on what debts could be discharged. Debtors and creditors could file cases. The development of debtor fillings, voluntary bankruptcies became a waterfall event. Thousands of debtors received discharges creditors received very ...

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