Section 77 solved two of the problems that had plagued corporate reorganization. Bankruptcy courts had jurisdiction of the assets throughout the country so that ancillary receiverships were not needed.
In , Congress extended reorganization to non-railroad corporations as well. The Bankruptcy Act had created a well-organized group with a vested interest in the evolution of the law—bankruptcy lawyers. Although the reforms were ones that bankruptcy lawyers and judges had wanted, many of them believed that the law could be further improved.
The culmination of their efforts was the Chandler Act of The Chandler Act created a menu of options for both individual and corporate debtors. Debtors could choose traditional liquidation. They could seek an arrangement with their creditors through Chapter 10 of the Act. They could attempt to obtain an extension through Chapter A corporation could seek an arrangement through Chapter 11 or reorganization through Chapter Chapter 11 only allowed corporations to alter their unsecured debt, whereas Chapter 10 allowed reorganization of both secured and unsecured debt.
By modern American bankruptcy law had obtained its central features. The law dealt with all types of individuals and businesses. It allowed both voluntary and involuntary petitions. It enabled debtors to choose liquidation and a discharge, or to choose some type of readjustment of their debts. By , the vast majority of bankruptcy cases were, as they are now, voluntary consumer bankruptcy cases.
After involuntary bankruptcy cases never again rose above 2, See Table 4. The decline of involuntary bankruptcy cases appears to have been associated with the decline in business failures. According to Dun and Bradstreet, the number of failures per 10, listed concerns averaged per year from to From the failure rate averaged 50 per 10, concerns.
The failure rate did not rise above 70 per 10, listed concerns again until the s. Also, the number of failures, which had averaged over 20, a year in the s did not reach 20, a year again until the s.
The mercantile failures which had so troubled late nineteenth century merchants and manufacturers were much less of a problem after the Great Depression. Source: United States. Statistical Abstract of the United States. Washington D. In contrast to the decline in business failures, personal bankruptcy climbed steadily. Prompted by a rise in personal bankruptcy in the s, Congress initiated an investigation of bankruptcy law that culminated in the Bankruptcy Reform Act of , which replaced the much amended Bankruptcy Act.
It provides Chapter 7 liquidation for businesses and individuals, Chapter 11 reorganization, Chapter 13 adjustment of debts for individuals with regular income, and Chapter 12 readjustment for farmers.
In , seventy-one percent of all cases were Chapter 7 and twenty-seven percent were Chapter Many of the changes introduced by the Code made bankruptcy, especially Chapter 13, more attractive to debtors. The number of bankruptcy petitions did climb rapidly after the law was enacted. Lobbying by creditor groups and a Supreme Court decision that ruled certain administrative parts of the Act unconstitutional led to the Bankruptcy Amendments and Federal Judgeship Act of The amendments attempted to roll back some of the pro-debtor provisions of the Code.
Because bankruptcy filings continued their rapid ascent after the , recent studies have tended to look toward changes in other factors, such as consumer finance, to explain the explosion in bankruptcy cases. Bankruptcy law continues to evolve. To understand the evolution of bankruptcy law is to understand why groups of people came to believe that existing debt collection law was inadequate and to see how those people were able to use courts and legislatures to change the law.
In the early nineteenth century demands were largely driven by victims of financial crises. In the late nineteenth century, merchants and manufacturers demanded a law that would facilitate interstate commerce. Unlike its predecessors, the Bankruptcy Act was not repealed after a few years and over time it gave rise to a group with a vested interest in bankruptcy law, bankruptcy lawyers. Bankruptcy lawyers have played a prominent role in drafting and lobbying for bankruptcy reform since the s.
Credit card companies and customers may be expected to play a significant role in changing bankruptcy law in the future. Balleisen, Edward. Coleman, Peter J. Hansen, Bradley. Martin, Albro. Matthews, Barbara. Brown University. Moss, David and Gibbs A. Sandage, Scott. Rutgers University. Skeel, David A. Princeton: Princeton University Press.
Oxford: Oxford University Press. Swain, H. Tufano, Peter. Railroads in the Nineteenth Century. United States. Warren, Charles. Bankruptcy In United States History. Cambridge: Harvard University Press. Bankruptcy Types. What Comes Next? By David Haynes. Fact checked by David Rubin. Article Fact Checked January 03, Over the course of more than 30 years, David J. Rubin has served various roles in the editing and publishing field, specifically focusing on the subjects of law, software development, photography, and literature.
The majority of his experience lies within the legal and financial spaces. There, he held several hats, including manager of research and development, programmer analyst, and senior copy editor. In addition to fact-checking for The Balance, he produces videography and photography, and also writes fiction.
Learn about our editorial policies. Reviewed by Khadija Khartit. Article Reviewed June 30, Khadija Khartit is a strategy, investment, and funding expert, and an educator of fintech and strategic finance in top universities. She has been an investor, entrepreneur, and advisor for more than 25 years. Learn about our Financial Review Board. Key Takeaways Bankruptcy allows individuals and corporations to eliminate or reorganize debt that they are unable to repay according to the original terms.
Bankruptcy pre-dates the founding of America and has gone through a number of developments since being introduced in the United States in The Bankruptcy Act of only allowed involuntary bankruptcies of merchant debtors and included no provisions for individuals to file on their own. The Bankruptcy Act of allowed debtors to file for bankruptcy voluntarily, without a creditor needing to initiate the proceedings.
The Bankruptcy Act of allowed any individual to file for involuntary bankruptcy, not just merchants. The Bankruptcy Act of was a nationwide comprehensive law that became more or less permanent, although it has been amended and replaced many times. The Act, with some later amendments, is the bankruptcy law in effect to today in the United States.
Eligible debtors may commence bankruptcy cases under Chapters 7, 11, 12, 13, or Certain creditors may commence involuntary bankruptcy cases under some of the chapters. A trustee is always appointed in Chapter 7, 12 and 13 cases and may be appointed in Chapter 11 cases. Individual debtors can claim federal law exemptions, or alternatively State law exemptions if permitted by State law.
Each class of creditors must accept a chapter 11 plan by a majority in number and at least two-thirds in amount of claims, subject cramdown provisions that allow confirmation of a plan over a dissenting class of creditors. Marathon Pipe Line Co. In all judicial districts, district courts have referred the exercise of bankruptcy jurisdiction to bankruptcy courts to the fullest extent permitted by law.
BAPCPA amendments also allow direct appeals to the court of appeals in certain circumstances; add family fisherman to chapter 12, make Chapter 12 permanent, and create a new Chapter 15 for cross border insolvencies. They introduce new and undefined terms that resemble, but are different from, established terms that are well understood. Furthermore, the new provisions address some situations that are unlikely to arise.
Fortunately, after many twists and turns, a few patches of solid color emerge. This article briefly summarizes the history of the bankruptcy laws in the United States. If we are to be intellectually honest about the reasoning behind the treatment of such constructively fraudulent transfers, and recognize that where the debtor could have exempted the transferred item, then we must acknowledge that the underlying motive for the rule is not to benefit creditors but rather to punish debtors.
Additionally, the extraordinary favor granted to creditors owning even private student loans as of BAPCPA without a government guarantee whereby the same are more difficult to discharge than debts owed to the U. Treasury is nothing short of a lop-sided give-away to private banks without any public policy justification.
Finally, the mere fact that a voluntary Chapter 7 cannot be dismissed as a matter of right, is something of a bizarre peculiarity in modern jurisprudence. These are just a handful of oddities that show a remaining punitive, moralistic legacy in our bankruptcy law. Resnick and Henry J. Sommer, eds. Moringiello, Bankruptcy Issues, Law and Policy, 6 th ed.
Fray and Sidney K. Swinson, Introduction to Bankruptcy Law , 6 th ed. Skip to main content. Help Center. Members Members. Member Resources About Resources Ch. John's Case Blog. Newsroom Newsroom.
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