A Short History of Bankruptcy in America
The most widely accepted understanding on the origin of the word “bankruptcy” comes from a mixing of the ancient Latin word bancus (bench or table) and ruptus (broken). When a banker, who originally conducted his public transactions on a bench, was unable to continue lending and meet obligations, the bench was broken in a symbolic show of failure and inability to negotiate.
Before the 20th century, rules and practices concerning bankruptcy generally favored the creditor and were harsher toward the bankrupt. The focus was on the rights of the creditor, not the debtor. Furthermore, creditors almost always initiated bankruptcy filings against the debtor. The debtor would find himself in an “involuntary bankruptcy”.
In the United States, bankruptcies are under Federal jurisdiction by the Constitution as declared in article one, section eight of the Constitution. This article states that Congress can enact “uniform laws on the subject of bankruptcies throughout the United States.” The implementation of these laws, however, is found in statute law. These statutes are incorporated into the Bankruptcy Code which is found at Title Eleven of the United Sates Code and then is subject to state law in instances that the federal law is not sufficient to cover the circumstances of the individual’s case.
Early federal bankruptcy laws enacted in the United States were temporary responses to bad economic conditions. The first official bankruptcy law was enacted in 1800 in response to wide-spread land speculation. Throughout the 19th century, whenever the economy worsened, bankruptcy was permitted only to be repealed as soon as the good times rolled again.
Today, job loss and eventual exhaustion of unemployment benefits are typical reasons people consider filing for bankruptcy. Medical bills, divorce or small-business failures cause many people acute problems as well. Many more, if home ownership is involved, have an up-side down condition on their mortgage(s) and are in a lose-lose situation. These days many people have more than one of these conditions, some three or more! Why? In my opinion, due to little relief from the prolonged recession and because Americans are stalwart, positive and confident types, people are just waiting too long to file bankruptcy!
These are the very situations bankruptcy is intended to address. Because it is federal law, Chapter 7 bankruptcy is an inherently safe process — it does what it is supposed to do every single time; the risk lies in whom you choose to analyze and manage your bankruptcy for you. Chapter 7 Bankruptcy, done right, will give you a fresh start by wiping out, in almost all cases, all of your debt.
Bankruptcy Prohibits, by Imposing an “Automatic Stay”
Garnishment
Is someone of some organization taking your money out of your paycheck?
Bank Levy
Have you received a notice that a levy is about to be, or already has been, placed against your bank account(s)?
Lawsuits
Has someone shown up at your doorstep or place of business or work to serve you?
Foreclosures
Have you received a Notice of Default or are about to have your house sold?
Reposession
Do you have a car or other vehicle that is about to be reposessed?
Debt Collecters
Are insane people calling you at home or worse your place of business?