Bankruptcy is a law provided for those who are unable to pay their debts and this law is utilized to provide them with a way of paying their creditors. Since there is no debtor's prison any more, no one has to worry about going to prison because of not being able to pay. Instead, bankruptcy consolidates the debts and sets up a schedule by which the debts can be paid. In 1800, the first federal bankruptcy law was enacted in the United States. Then in 1803, this law was repealed and it wasn't until 1841 that new bankruptcy laws were passed. The economic panic of 1837 required these new bankruptcy laws. From this date forward, there have been many laws repealed and new ones enacted. The result of these enacted laws have been to protect the debtor and provide rehabilitation to him so that this time of his loss will not affect him for the rest of his life. In 1933 and 1934 due to the Great Depression, it was necessary to enact a law that was wider in scope to allow companies a chance to reorganize their debt and protect their assets from their creditors. Then in 1978, the Bankruptcy Reform Act was put into law, which expanded on the law of the 1930s in that it provided a stronger reorganization procedure. This law is called Chapter 11 and it replaced Chapter 13 of the bankruptcy law of the 1930s. Chapter 11 made it easier for companies and individuals to file for bankruptcy and be granted protection from their creditors. However, the 1978 law did not cover any tax related situations. Thus, in 1980 Bankruptcy Tax Act was enacted, providing for some various taxation rules. In 1982, the bankruptcy court was ruled unconstitutional by the US Supreme Court, opening the way for the Bankruptcy Amendment Act of 1984, which took away some powers of the bankruptcy judges. Chapter 12 bankruptcy was created in 1986 to include farmers. In October 1994, the Bankruptcy Reform Act of 1994 was signed into law overturning and changing much of the law under the 1978 act. It affected both business and individual bankruptcy laws. It made Chapter 13 more attractive to individuals instead of using Chapter 7 for consolidating and scheduling payment on their debt. It provided creditors more help in securing debt owed them by bankrupt estates. Economic and social changes have prompted the need for reform on the bankruptcy laws through the years. The past couple of decades have seen changes in the financial world as well as social upheaval. With credit flooding the nation the past several decades, consumer debt has sky rocketed and the rate of default on credit cards has caused many to seek bankruptcy protection. Medical problems, divorce and job losses have caused most of the Chapter 7 bankruptcies. A record number of bankruptcies were filed in the 1980s and early 1990s. Job losses and business losses accounted for this record number of bankruptcies. Many small businesses (the mom and pops) closed during this period, but also large companies such as Texaco, Continental Airlines, Greyhound and Pan Am also filed for bankruptcy. This large number of bankruptcy filings put the bankruptcy courts in a bind to handle all of them; thus, they utilized the assistance of bankruptcy professionals to speed up the court procedure. These professionals were approved by the court to act as examiners and mediators. In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act went into effect under heavy criticism. It places new restrictions both on individuals and companies as to how their debt will be reorganized to be paid. In effect, it tends to make it harder for everyone to file for bankruptcy protection. |
