A Brief Context & History of Western Bankruptcy Law: Part 2
In this second installation of our three-part blog series on western bankruptcy law, we will pick up where we left off last month. We so far have been looking at the evolution of bankruptcy law in England as that is where the formation for our United States laws came from. We’ll still continue in England as there is a little more to cover, and then we’ll look at the beginnings of some laws in the United States.
We had last talked about the “Insolvent Debtors Act 1813.” If you recall, this act was a move toward more protection for those owing a debt; however, the Act still did favor the creditors quite a bit and didn’t offer true protection for debtors. Though things were starting to move in a positive direction, there was still a long way to go to bring the laws to a place where they worked to protect all parties.
The page really started to turn, and so did attitudes, in 1825. In this year, the “Bankrupts Act 1825” was passed, and this was the first law that allowed people to initiate the proceedings for their own bankruptcy. They did need to do this in agreement with their creditors; however, it was the first time that they had any real say in the process or in initiating the process. Prior to this only a creditor could bring charges to a debtor, and if they couldn’t pay, it was often done as a measure of revenge or as punishing those who owed a debt. Many have questioned if processes that only favored creditors actually served to try to resolve an issue or if they were really simply there as a way to punish people who were insolvent.
1825 marks the beginning of a time when both parties started to see the process as a means to truly resolving an issue and looking out for the interests of both parties and come to as amicable a solution as was possible given the circumstances.
By the middle of the same century, attitudes towards corporations were also changing. Thanks, in part, to the South Sea Bubble fiasco and some other high-profile cases in which people lost a lot of money, many people started to view companies as dangerous to invest in and also inefficient and incompetent. Without being able to trust their own investments, the economy stalled as no one wanted to put up money to support businesses that had proven to simply lose money and be a poor investment. Through a few pieces of legislation, companies were able to be started without royal permission, and companies could take on their own separate legal “personality.” This separated company debts and profits from being tied to individuals personally.
In the next several years, quite a bit happened in terms of bankruptcy law for corporations. While this history is fascinating, we’ll continue on to talk about personal bankruptcy law as that is the focus of this blog series.
While laws were changing and the foundations of modern bankruptcy was being set in Great Britain, the same thing was happening here in the U.S. Because of the relatively young economy at the time, the changes in the U.S. were fewer and further between, but the general direction of the laws were following those of Great Britain throughout the 1800s.
The first real law that established our modern concepts of debtor-creditor relationships came in the form of the “Nelson Act” of 1898. Though changed over time, this Act would ultimately be in tact until a major overhaul in 1978 which we will look at in depth next month.
Next came the Bankruptcy Act of 1938, also known as the “Chandler Act.” Though the previous “Nelson Act” remained in effect, the “Chandler Act” expanded voluntary access to the bankruptcy system. It also gave the US Securities and Exchange Commission authority in the administration of bankruptcy procedures. This was yet another move towards formalizing and establishing precedent for bankruptcy filings.
Although we’ve seen how things have been changing over the centuries, the biggest reform to date will come in 1978, and that will be the single biggest Act that affects the current-day law that we practice at Burr Law as Milwaukee bankruptcy attorneys.
We’re reminded again that, the history is interesting, but what matters most for our clients right here and now is that we know the law and work toward your best interest. Our Milwaukee bankruptcy lawyers are experts in the field and always have your future and well-being in mind as we work towards the best possible outcome for you.
Missed the first installment? Click here to take a look at that. As always, we welcome you to contact us to get more information on what we can do to help you.