Saturday, August 23, 2008

History of Bankruptcy in the US

I thought it might be instructive to know a bit about the background and history of bankruptcy, and so I wanted to bring this to you. Originally an article released under PLR by Mike Steup, but I updated the contents afterwards.

The first bankruptcy laws in the United States were established due to negative economic conditions in society. They began in 1800 and were repealed in 1803. The modern bankruptcy laws first came into existence around the year 1898, when the Bankruptcy Act gave companies that were in distress a way of paying back their creditors and being protected from losing everything all at once.

Depression Long Forgotten

Since World War II until the 1970s, the idea of bankruptcy did not make major headlines. There weren’t very many businesses that failed. Even through the 1970s, there were really only two major companies that ended up filing for bankruptcy. The Big Depression of the 1930's had been forgotten — viewed somewhat as a "thing of the past"...

Modern Developments

In 1978, an act was passed that was called "The Bankruptcy Reform Act". It took effect from October 1st, 1979. This completely revamped the practices regarding bankruptcy. Chapter 11 was created, which was designed to allow the reorganization of businesses and get everyone back to working order after bankruptcy is filed.

Also, during the 1980s, there were many changes that were made to various bankruptcy chapters and acts. These mainly dealt with tax related issues, and rules to protect companies from losing everything as a result of bankruptcy depending on their states at the time of filing and their abilities to pay back the debts on their own.

During the 1980s and early in the 1990s, the United States of America experienced a record number of bankruptcies of all different types. This could be attributed to the fact that the process was made much more simple, and that the benefits were starting to really look good to the people who were filing. The changes in the filing systems, and the large numbers of bankruptcies led to changes that had to be made in the court systems so that everything could be handled. This made the process much easier overall, and allowed for more people to be able to be protected through filing for bankruptcy.

Now, bankruptcies are even easier to file because there are pre-arranged and prepackaged bankruptcies, and form templates that are created with everyone in mind. This way, the courts can handle all of the bankruptcy proceedings, and everything can run much more smoothly.

Maybe Easier Than Ever, but Consider Consequences

Even though bankruptcy is now easier than ever to file, you should always keep in mind that this is something that is going to have a major impact on your credit.

You should never file for bankruptcy unless you feel that it is your last chance and unless you feel that you have no other option. Otherwise you might find that it is something that is harder on your credit than you could have ever imagined.

No comments: