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Some Background History about U.S. Bankruptcy

During the early years when our forefathers founded the United States, many people had immigrated to escape the harsh bankruptcy laws in their native countries.  England, for example, was well-known for its debtors' prisons and the numerous debtors who died in prison.

Under the First Article of the U.S. Constitution, Congress received the right to legislate bankruptcy in the United States.  And the first forms of bankruptcy were temporary reprieves during tough economic times.  Congress passed and repealed U.S. bankruptcy laws numerous times, with certain laws taking prominence and shaping the form of bankruptcy we have today:

  • The first major bankruptcy law that Congress passed that endured was the Bankruptcy Act of 1898.  This act made most debts dischargeable, eliminated requirements of paying creditors a certain debt percentage, and gave less influence to creditors who withheld their approval for discharge.
  • The next major revision of the 1898 act occurred in 1939, which created a wage earner, repayment plan concept, the forerunner of today's Chapter 13.
  • The 1978 Bankruptcy Reform Act created the Title 11 U.S. Code, known today as the Bankruptcy Code, which established bankruptcy courts, and Chapters 7, 9, 11, 12, 13, and 15 bankruptcies.
  • In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) became the next most significant change in bankruptcy law.  It imposed greater restrictions on filing Chapter 7 based on income requirements and required more extensive bankruptcy paperwork to counter perceived fraud.

U.S. bankruptcy laws grant a tremendous privilege to honest debtors, giving them the opportunity to move of out debt and live productive lives.  However, bankruptcy remains a complicated legal area, and debtors wishing to file bankruptcy should consult an experienced bankruptcy attorney.

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