A Brief History of Debt Forgiveness in Society
Article I of this great country’s Constitution grants Congress the power to enact uniform laws on the subject of bankruptcy. In other words, relief from debt through bankruptcy law sits at the core of this nation’s principles.
Our society has a long history of offering certain debt relief. England enacted its first bankruptcy law in 1542, and the concept of debt forgiveness first appeared in the Bible at Deuteronomy 15:1.
Contemporary bankruptcy law takes its shape from the Bankruptcy Act of 1898, which continued in effect for the next eighty years and remains a primary influence on today’s laws. Unlike current law, however, the Bankruptcy Act required individuals to prove their right to relief. If successful, the court entered an order “declaring” the petitioner bankrupt. This lent a more public and judgmental atmosphere to the proceeding. Today, however, you need not prove insolvency, and no order enters finding you “bankrupt.” The lingering memory of the old, more judgmental tribunal may contribute, in part, to the present day dread of the thought of “declaring” bankruptcy.
The Bankruptcy Reform Act of 1978, codified as title 11 of the U.S. Code, eliminated the need for an order declaring bankruptcy and remains in effect today. Instead, the petitioning individual must satisfy certain broad criteria, and in most cases the individual need not appear in court at all. Among many other things, the 1978 law added additional “chapters” that enabled relief to individuals beyond the selling of assets to pay creditors. One of the new chapters (chapter 13) provided for working people who needed to keep essential assets, such as a house and car, if they qualified.
Just before the turn of the millennium, to fortify their advantages, the credit card issuers launched a tireless lobbying campaign. The campaign consisted of spreading misinformation about bankruptcy filing and credit card use, for the purpose of depicting astounding abuses where, in fact, there were none.
After some admirable but insufficient resistance, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act of 2004, which effected the greatest changes to bankruptcy law since the enactment of the 1978 Code. Among other things, the new law complicated the process of obtaining relief and created more obstacles.
Despite such blatant service of special interests, however, Congress managed to leave the overall structure and function of the 1978 law intact. And despite the changes, federal bankruptcy law continues to provide powerful and permanent relief to honest debtors everywhere.