In Bankruptcy Information, Bankruptcy Questions

When I meet with potential clients, they often express embarrassment or even shame over the fact that they have to file bankruptcy. I always tell them they shouldn’t feel that way. Bankruptcy laws are there for their benefit and no one should be embarrassed about needing to file. I often give a short speech on the history of bankruptcy and why it exists. You can watch it here.

It’s in the Constitution

Bankruptcy is one of the few laws specifically mentioned in the Constitution of the United States. Article I, Section 8, Clause IV says that Congress has the power to enact uniform laws on the subject of bankruptcy. Bankruptcy was not unknown at the time of the Constitution; in fact, it goes back several hundred years. The Founding Fathers recognized that bankruptcy was important enough that laws throughout the nation should be uniform, so that a person who received a discharge in New York was entitled to have that discharge recognized in Utah, for example. If the matter of bankruptcy had been left up to each individual state, this might not be the case. Some states could prohibit bankruptcy altogether.

The fact that the subject of bankruptcy is in the Constitution shows that the drafters recognized that bankruptcy is important in society and that there needed to be provision in the laws of the new nation for it.

Bankruptcy has been Recognized for Centuries

In the 1400s, business was typically conducted in a public marketplace where merchants had tables from which they sold their wares. If a merchant wasn’t able to pay his creditors, those creditors would put him out of business by breaking his table so he had nowhere for his goods. The term “bankruptcy” comes from banca rotta, which means “broken bench.”

Bankruptcy was originally a remedy for creditors, with little thought given to the debtor. Debtors who couldn’t pay their bills were often cast into debtors’ prison, where they stayed until they did pay their creditors. Eventually people realized that someone can’t pay his bills if he’s in prison. Gradually, laws were enacted to give debtors relief from their debts without being jailed. It’s from these laws that modern bankruptcy laws came. Every modern economic society has a form of bankruptcy today.

The Notion of Forgiving Debts Came From the Bible

In ancient Israel, the Jews celebrated the Sabbath Year every seventh year. Part of this celebration included forgiving debts among the Jews. After each seventh Sabbath Year was a Jubilee Year, the 50th year, in which the Jews forgave all debts, to Jews and Gentiles alike.

Society Recognizes the Benefit of Letting People Start Over

Modern bankruptcy laws are a recognition that all society, not just the individual debtor, benefits by allowing the honest person who has fallen on hard times relief from her debts. People who are saddled with insurmountable debt experience a number of ill effects besides being sued and harassed by creditors. They can become despondent, depressed and suffer mental illness, which can lead to job loss and homelessness. They can turn to drugs and alcohol abuse, neglect children or even become criminals. All of these things impact society as a whole. Allowing people to escape crushing debt through bankruptcy is one way society has developed to help avoid these problems.

Bankruptcy is most often caused by factors outside the person’s control. The leading causes of bankruptcy are job loss, divorce, or unexpected medical expenses for which there is no or inadequate insurance. All of these are usually beyond the individual’s control.

If you are facing financial challenges, don’t be too embarrassed or ashamed to talk to a professional about filing bankruptcy. We’re here to help. Contact us here, or call or text (801) 413-3708, or email steve@schamberslaw.com.

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