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Bankruptcy history

Bankruptcy is as old as money itself, or at least as old as the idea of credit. In ancient Greece, when someone went bankrupt they became their creditor’s slave until they had repaid their debt. In medieval Britain, those who went bankrupt were sent to debtors prison until they repaid not only their debt, but also the money their captors spent to keep them in prison. Fortunately, today there are far more favorable options available to those in debt.

<p “=””>Bankruptcy law has a long history in the United States. The constitution gives congress the power to regulate bankruptcies for the entire nation. However, it took congress half a century to use this power. For most of the 19th century, bankruptcies in America were involuntary proceedings only used in certain cases. It wasn’t until the Bankruptcy Act of 1898 that the modern idea of bankruptcy became a reality in American law.

Congress went on to expand and further define laws regulating bankruptcies in 1938 and 1978. These laws, among other things, made bankruptcies widely available and established courts to hear bankruptcies. This is important because it means when an individual or business goes bankrupt, the court that hears the case is a federal one, not a state court.

What is bankruptcy?

Webster’s defines it as, “utter failure or impoverishment.” (1) However, when we use the term, we are generally not talking about the state of ruin, but the way out of it. We’re talking about debt relief. In this context, it is the legally declared inability of an individual or organization to pay their creditors. So, what happens once you’ve legally declared you can’t pay your creditors? Well, if you can prove you are eligible, you can receive the protection of the bankruptcy court, and get on the path to financial solvency.

Check back soon for All About Bankruptcy, Part 2

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