History of bankruptcy law in the United States

The history of bankruptcy law in the United States traces back to 1800, after its reception from English law. As the legal regime for bankruptcy in the United States developed, it moved from a system which viewed bankruptcy as a quasi-criminal act, to one focused on solving and repaying debts for people and businesses suffering heavy losses.

Upon the ratification of the United States Constitution in 1789, Congress was given the power under Article I, Section 8, Clause 4 to legislate for “uniform laws on the subject of Bankruptcies” throughout the United States. Congress' first law on the subject was the Bankruptcy Act of 1800, which was limited to traders and provided only for involuntary proceedings. This was repealed in 1803. Diplomatist Edmund Roberts, President Andrew Jackson's envoy to the Far East, incorporated American concepts of bankruptcy protection into Article VI of the Roberts Treaty with Siam of 1833. Voluntary bankruptcy in the United States was first allowed by the Acts of 1841, and 1867. These early acts and the Bankruptcy Act of 1898, known as the Nelson Act, established the modern concepts of debtor-creditor relations.

The Bankruptcy Act of 1938, known as the Chandler Act expanded voluntary access to the bankruptcy system, and voluntary petitions were made more attractive to debtors. The Chandler Act gave authority to the Securities and Exchange Commission in the administration of bankruptcy filings.

The Bankruptcy Reform Act of 1978, commonly referred to as the Bankruptcy Code, constituted a major overhaul of the bankruptcy system. First, it covered cases filed after October 1, 1979. Second, the 1978 Act contained four titles. Title I was the amended Title 11 of the U.S. Code. Title II contained amendments to Title 28 of the U.S. Code and the Federal Rules of Evidence. Title III made the necessary changes in other federal legislation affected by the bankruptcy law changes. Title IV provided for the repeal of pre-Code bankruptcy, the effective dates of portions of the new law, necessary savings provisions, interim housekeeping details, and the pilot program of the United States trustee.

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