A Brief Context & History of Western Bankruptcy Law: Part 1

In this three-part series, we will be taking a brief look at the history of western bankruptcy law. Though there is detailed history of bankruptcy law dating back to the most ancient societies, it is, most specifically, English bankruptcy law starting in Renaissance England that has most directly evolved into what we know and practice today as Milwaukee bankruptcy lawyers.

It bears repeating that some of the earliest societies we have records of do have detailed histories of how debt and debtors were handled in society. While the history is fascinating, it’s not the purpose of this series to review the entire world history of debt and bankruptcy law & culture as it is simply too large a subject to cover in a small blog series. Furthermore, some of the ancient societies used slavery and severe criminal punishment as an integral part of how debt was repaid or settled, and that simply is a far cry from what has evolved into modern bankruptcy law which is now used as a protective measure to the debtor to protect his or her future and financial well-being.

We begin in Renaissance England in 1542. This is when the first recognized piece of legislation, called the “Statue of Bankrupts 1542” was adopted into English law. Though debt and debt repayment was handled in society before this, it was done so informally and satisfaction conditions were often largely left up to the creditor alone. This statue was the first piece of legislation officially adopted to actually give some formal structure to the process of debt satisfaction, and while it didn’t go very far in protecting the parties owing a debt, it did start to provide some basic measures of protection for them. It should be noted that this first piece of legislation was created more to protect the creditor than it was the debtor. Prior to formal legislation, many debtors would seek to intentionally borrow with no good faith intention of repaying, and when they had borrowed enough, they would flee the land. Though there were certainly people with debt for legitimate reasons, many “bankrupts” at this time were often seen as thieves because of the ones who borrowed with no intention of repaying.

By 1705, it was becoming clear that the approach of seeing debtors as criminals was not accurate in many cases, and steps towards a more humane approach in regard to the relationship between debtors and creditors was sorely needed. The “Bankrupts Act 1705” was adopted, and this act gave the Lord Chancellor the power to step in and mediate in bankruptcy cases and to actually discharge debts when the agreed upon procedures had been followed. This was really the first move toward the creation of laws that were designed to start to protect the borrowers and not just the creditors as had been the case up until that time. Still, the law was largely in favor of the creditors, and in the famous case of “Folwer v Padget, Lord Kenyon reasserted the old feeling toward debtors when he said “Bankruptcy is considered a crime and a bankrupt….is called an offender.” Still, though they had a long way to come, it is with this act that we can really start to see the beginning of changes in attitudes toward protecting all people in different financial situations.

We jump ahead about one hundred years, and English society continued to progress in the overall perception of indebtedness. By 1813, the “Insolvent Debtors Act 1813” provided for the protection from jail after 14 days. Under this act, debtors could be sent to jail in some cases, but they had to be released after 14 days provided their assets did not exceed £20 (about $30). If, however, they did have more than that, they were ordered to pay their creditors from their assets. Even though this was a big step in the right direction toward offering the people more protection, creditors did still have the upper hand, and they were ultimately the ones who had the most power in dictating an outcome that was ultimately beneficial to them.

In the next installation in this series, we will start to hear about changes in laws and attitudes that really sought to provide much more protection to the borrowers and really start to give them rights and protections in the entire process of making financial satisfaction. The changes in laws will really start to form the foundation of modern bankruptcy law and practices as a protective measure for the borrowers and not simply a way to only look out for creditors.

While the history of bankruptcy law is certainly fascinating, we are seeing that, in its infant stages, it is much different from the laws we have today. At Burr Law we thoroughly understand today’s bankruptcy laws that are truly there to protect you and your financial future. As Milwaukee bankruptcy lawyers, we’ll work with you and fight for you to protect your best interest.

Look for next month’s installment of this three-part series, and in the meantime, don’t hesitate to contact us today with all your questions about how we can help you.