A Short History of Bankruptcy Laws in the United States
Author: admin
The first modern Bankruptcy Act in America, also called the “Nelson Act”, was signed in 1898.Before that, the consequence of not paying your debts usually was going to prison. The Nelson Actwas intended to make it easier for creditors to liquidate the debtors’ assets, but also to help bankruptenterprises with reorganization.
In 1938, as a consequence to the National Bankruptcy Conference, the Chandler Act wasissued. This Act gave both individuals and corporations a set of alternatives to choose from: traditionalliquidation, arrangements with creditors (Chapter 10 and 11) or an extension (Chapter 12). TheBankruptcy Reform Act of 1978 introduced many changes, among which Chapter 13, which made filingfor bankruptcy seem more attractive; hence, the number of petitions grew rapidly.
Although it was amended many times since then, the current Bankruptcy Code is basically thesame as in 1978. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCA)was issued. To combat fraud, a “mean test” was added through the BAPCA – in order to differentiatedebtors eligible for Chapter 7 and Chapter 13 – as well as credit counseling and financial education forpetitioners.
Although bankruptcy laws in America seem to be too kind to debtors, it is actually whatstimulates the economy, by giving people a second chance.
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