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Brief History of Bankruptcy in the United States

Last updated 2 years ago

Debt forgiveness has been tied to society’s moral code for thousands of years. In the United States, the founding fathers realized that high levels of debt and legal debt forgiveness could be beneficial to the free-market economy that they hoped to build. Now, filing personal bankruptcy (Chapter 7 or Chapter 13) is a well-established process that takes place in federal courts. Here is more information about bankruptcy’s history in the United States:

Colonial History

While the idea of erasing debt has been around since the Roman era, normalizing debt forgiveness in the U.S. began during colonial times. Land speculation and other growth fields necessitated high-risk and high-reward investments. The founding fathers codified this idea in Article 1, Section 8, Clause 4 of the U.S. Constitution, which allows Congress to enact "uniform laws on the subject of bankruptcies throughout the United States.”

Rise in Number of Filings

The yearly number of personal bankruptcy filings has steadily increased over the last century. However, it rose dramatically in the first half of the last decade, and public policy stigmatized this debt relief. In 2005, Congress added amendments to the Bankruptcy Code and created "means test" for Chapter 7. This law held that those individuals who earned more than the average yearly income in their state were ineligible for Chapter 7, and could only file for Chapter 13.

The Great Recession

In the last four years, bankruptcy filings have increased exponentially. In 2007, 519,364 people filed for Chapter 7. That number reached 1,139,601 in 2010. The stigma associated with bankruptcy has all but disappeared, eliminating any social barriers that may have once existed about erasing debt.

If you are overwhelmed by creditor phone calls and overdue bills, filing for individual bankruptcy may be the right course of action. The experienced bankruptcy attorneys at Golden State Law Group can help represent you in federal court and ensure that your assets are protected during filing. Call our Southern California at (619) 234-3333 to schedule a free consultation today.

 

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