Those who could potentially benefit enormously from filing for bankruptcy protection often shy away from this debt-resolution tool because of its negative connotations. But often those are rooted in misunderstandings and misconceptions.

Most people have no idea that bankruptcy laws have been in existence since the heyday of the Roman Empire. However, our modern bankruptcy laws in the United States stem from English statutes from as far back as the 16th century.

History of bankruptcy in America

Those who framed our Constitution initially based our fledgling nation’s bankruptcy laws on English common law. But much has changed in the hundreds of years hence, and these changes are reflected in the modifications of federal bankruptcy provisions and restrictions.

Initially, the different original states enacted laws that favored creditors and established debtors’ prisons for those who failed to meet their financial obligations. Thankfully, in the 19th century, wiser heads prevailed and the doors of debtors’ prisons closed for good.

Creditors got the fairer shake

The first bankruptcy laws tended to favor the creditor and offered only involuntary bankruptcies for merchants who owed their creditors.

Various permutations of the bankruptcy laws ensued, including the Bankruptcy Act of 1841. This was a game-changing law, as it allowed debtors to file for voluntary bankruptcy without needing a creditor to initiate it. Bankruptcy was also no longer reserved solely for indebted merchants. The United States District Courts had the power to grant discharges of debt to individuals of all walks of life.

Creditors revolted, and this law was repealed only two years after its passage.

Subsequent reforms ensued

There were numerous other changes in the years since the repeal. Modern changes occurred in the 70s with the Bankruptcy Reform Act of 1978, which established the Bankruptcy Code and greatly empowered bankruptcy judges.

In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). This reform ushered in the Means Test to determine eligibility for Chapter 7 bankruptcy filings for individual debtors to obtain any relief. With the passage of BAPCPA, Congress mandated both required debtor education courses and credit counseling for individual filers.

Bankruptcy laws quite complex

All of these changes have resulted in the U.S. bankruptcy laws and codes becoming quite complex. This is why consumers looking for bankruptcy relief are encouraged to retain the services of knowledgeable and experienced bankruptcy attorneys to receive all the protections for which they are eligible under the law.