A BRIEF HISTORY OF BANKRUPTCY
Many people feel embarrassed or even ashamed to think that they have to file bankruptcy. It’s a natural reaction. We’re all taught to pay our “just debts” and no one would want someone else to file bankruptcy on them and not pay what was owed.
For thousands of years society has recognized that in extreme cases it is helpful and in the best interests of people and society in general to allow an honest debtor to be relieved of his or her debts. Bankruptcy is one of the few laws specifically mentioned in the United States Constitution. Congress was given power to enact uniform laws on bankruptcy so that a person who filed in Utah, for example, doesn’t have to worry that Nevada or New York or any other state will recognize the bankruptcy. The word “bankruptcy” comes from the Italian banca rota, which means “broken bench.” When a merchant couldn’t pay his debts his creditors broke his bench in the market place so he could no longer conduct business.
The concept of relieving people from debts goes back at least as far as the ancient Israelites. The Old Testament speaks of both the Sabbath year (every seven years debts among the Jewish people were forgiven) and the Jubilee year (every 50 years all debts were forgiven). In either case the debtor was released from the bondage of debt and allowed a fresh start. The fresh start is a pillar of the concept of bankruptcy.
Some of the reasons that bankruptcy is not only helpful for the individual but for society in general are:
- People with unmanageable debt sometimes turn to crime, alcohol or drug abuse, which can break up families and harm innocent citizens.
- People with unmanageable debt often give up and quit working all together. In that case they may go on welfare, which costs everyone.
- People who aren’t working are not contributing to society either by providing goods or service through their labor or by paying taxes.