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Origins of Insolvency

Origins of Insolvency
"""The first personal bankruptcy laws were enacted in Britain over four hundred and fifty years ago; however, those statutes forced bankrupts into infamous debtor's prisons (it could have been worse; the Roman Empire forced insolvent debtors to serve as slaves to their creditors). Throughout the majority of western civilization, inability to repay debts was equated with fraud, and debtors were regarded as criminals and frequently sentenced to death.

Not until the English economy experienced a period of growth in the 1600s did things truly begin to alter. As more credit opportunities became available, the belief that unscrupulous credit practices could take advantage of debtors increased. At the turn of the seventeenth century, new laws began to differentiate between the unfortunate and the criminally inclined, and social conceptions of debtors began to shift. After the enormous depression that followed the Seven Years War in 1760, respected members of the emerging middle class were unable to repay loans, and bankruptcy came to be viewed as a sad (but ethical) necessity.

After early colonial laws in the United States punished debtors with branding (T for Thief burned onto the thumbs) and public floggings, the first article of the United States Constitution provided vague guarantees of """"uniform laws"""" for bankruptcy protection, although the first law was not passed until 1800 and contained a number of restrictions to prevent coverage. Under this law, only creditors could request bankruptcy proceedings, debtors had to belong to specific industries, and debts had to total a (relatively large for the time) sum. Despite all of these laws, many debtors were still able to successfully eliminate their debts. The law from 1800 was repealed three years later, and despite another attempt in 1841, there was no bankruptcy protection that modern consumers would recognize until 1867. Things weren't ideal - administrative fees were so high that the creditor wouldn't receive any funds, and homestead exemptions varied greatly from state to state - but for the first time, desperate debtors had a way to stop their spiraling bills.

The 1878 law was also repealed after nine years, but the writing was on the wall. Even the bro-business establishment argued that state protection for creditors was necessary. Finally, in 1898, the bankruptcy legislation that has largely survived to the present day was enacted; all debtors, corporations and ordinary individuals, were protected, and all debts, including those incurred prior to the law, were dischargeable. The new procedures were much more similar to legal hearings than previous states' administrative meetings; this allowed debtors undergoing involuntary proceedings to be guaranteed jury trials but, as you might assume, also led to an increase in bankruptcy attorneys.

During the subsequent years, a number of modifications were made to the bankruptcy laws. In 1902, state exemptions from the overall legislation were permitted, and debtors could only declare bankruptcy once every six years (later extended to seven). A few years later, Chapter 9, intended for municipalities and parts of local governments, and Chapter 12, intended to assist privately-held family farms were added to the statutes.

Obviously, the majority of modern debtors are most inquisitive about the effects of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. While the statutes providing assistance to businesses remained largely unmodified, legislators worked to weaken the Chapter 7 and Chapter 13 protections available to ordinary consumers. Six months before they can even attempt to file for bankruptcy, borrowers must now meet with consumer credit counseling agencies and, prior to bankruptcy discharge, must complete a debt-management course for which they must pay significant fees. In addition, debtors must submit their finances to a new'means test' that makes Chapter 7's potential for debt liquidation increasingly inaccessible. Under the new law, courts may independently convert a Chapter 7 bankruptcy to a Chapter 13 bankruptcy, dismiss any bankruptcy filing at any time, and even sanction debtors and their attorneys for superfluous bankruptcy filings (including reimbursement of legal fees).

Compared to recent years, it's much more difficult for average consumers to declare bankruptcy and eliminate debt (though, thankfully, we're still free from having our thumbs and ears branded and affixed to pillories). Chapter 7 protections are still necessary for debtors who have endured severe hardships - unemployment, medical emergencies - without sufficient savings or assets. However, given the punitive treatment of Chapter 13 cases under the 2005 legislation, it would be prudent for the vast majority of borrowers to at least consider an alternative to bankruptcy. Debt settlement, for example, negotiates debt liquidation for up to fifty percent of total balances, similar to Chapter 13 bankruptcy options, but without the negative effects on credit reports and Fico scores. It is a new industry, but as legislative restrictions make it increasingly difficult for most debtors to file for bankruptcy, debt settlement is likely to have a long and prosperous history.

" - https://www.affordablecebu.com/
 

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"Origins of Insolvency" was written by Mary under the Finance / Wealth category. It has been read 109 times and generated 0 comments. The article was created on and updated on 02 June 2023.
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