If you’re looking at filing for bankruptcy, have already dealt with bankruptcy, or simply have an interest in financial history, it is well worth it to look into the history of bankruptcy. When dealing with something as complex as the bankruptcy process, you could expect the history of this process will be filled with interesting information. While not strictly relevant to a bankruptcy filing, it is well worth delving into the history of the process to understand its origins, history, and potential future.
Back in Time
The concept of debt forgiveness can be traced all the way back to the Old Testament. In the Old Testament, Moses references a Jubilee, which takes place once every 50 years. During that jubilee all debts are forgiven and all land sold reverts to its original owner. For something a bit less Biblical, we can move on to ancient Greece.
Debt forgiveness was a concept unfamiliar to the ancient Greeks. If a man owed debt, and was unable to pay, he forfeited not only his property, but also his family. All those subjects to debt will become, in effect, debt slaves. Some regions of ancient Greece protected these debt slaves from bodily harm and put term limits on how long they had to serve for the initial debt, though these limits only applied to the family members of the debtor, not his servants.
The first official laws concerning bankruptcy originated in England in 1542, under the reign of King Henry VIII. Strangely similar to the ancient Greeks, but without the hard labor, was the fact that bankrupted individuals were considered criminals and sent to debtors prisons. You may be familiar with the concept of the debtors prison from the works of Charles Dickens.
In America, the first official bankruptcy law was put in place in 1800 to deal with land speculation. In fact, a majority of the early bankruptcy laws in the United States were passed as a result of economic problems. Another bankruptcy law passed in 1867 (passed in response to the Civil War), though this was repealed in 1878.
The first modern bankruptcy act was passed in 1898, and was the first to provide protections for debtors from their creditors. This would be the start of a new type of bankruptcy, essentially a modern bankruptcy that allowed for a “fresh start” from debt.