Why is Bankruptcy Important?



A gentleman from New Port Richey, Florida asks our Bankruptcy Attorney, why is bankruptcy important?  Bankruptcy is important because it is one of the few tools that an Individual possesses to prevent his or her enslavement.

A Corporation may also file a sort of Bankruptcy called Chapter 11 Bankruptcy, which permits the Corporation to reorganize its Debts.  However, in most cases, a Corporation is a form that is maintained by Individuals.

In the United States, the modern Bankruptcy Laws are entombed in the United States Constitution, which specifically assigns the Congress the power to create and fashion the Bankruptcy Laws on a national basis.  Preceding the creation of the United States Constitution, the individual States or Colonies began fashioning and instituting their own forms of Bankruptcy Law or Insolvency Law.

It is argued that the purpose of the provision in the Constitution assigning the power of Congress to establish the Bankruptcy Laws and Courts in the new Nation was one of the earliest expressions of the power of the bankers over the freedoms and liberties typically espoused as the basic principles of the US Constitution.  Namely, that there was among the banks a worry that the States would fashion their own Bankruptcy and Insolvency Laws to the favor of the Individual, and to the detriment of the banks or lenders.  Secondly, by assigning the dominant power over the creation of Bankruptcy Law to the Federal Government, we have an early example of the exercise of Federal Supremacy over the States.

There are remnants of the States involvement in the establishment and crafting of Bankruptcy Law and Insolvency Law, in the United States through what are the States Exemptions.  Each State in the United States typically will have its own State Exemptions, which determines what Assets are beyond the reach of Creditors.  When one files a Bankruptcy in the State of Florida, he or she will usually employ the State Exemptions of the State of Florida in determining what Assets he or she possesses that he or she will retain despite the Bankruptcy filing.  Bankruptcy is typically presented as a balancing of the interests of the Individual filing Bankruptcy against those of his or her Creditors.  The second goal of Bankruptcy as typically taught is to provide the Debtor a Fresh Start through Bankruptcy Proceedings and finalization, or Discharge.

The State Exemptions are a reflection of these twin goals, as determined by the State Legislatures of individual States.  It is a determination that certain Assets are necessary for a Debtor to obtain a fresh start after Bankruptcy.  Outside of Bankruptcy, the Exemptions are a determination that certain Assets should not be dispossessed of a Debtor by a Creditor.  Whatever the goals of the States Exemption Statutes, one underlying purpose of the State Exemptions is the desire of the States that its inhabitants do not become wards or burdens on the States resources.

Anyways, before the establishment and adoption of Bankruptcy Laws in what is now the United States of America and England, the most common fate of a Debtor who was unable to repay his Debts was to become an Indentured Servant.  An Indentured Servant is a person who, because he is unable to repay a Debt, is indentured, or forced to provide his labor, in satisfaction of that Debt.  Indentured Servitude is one expression of Slavery.

Some historians will explain that Indentured Servitude was the earliest expression of Slavery in the Colonies.  Most of the Indentured Servants in the American Colonies came from England and Ireland.

Some historians will also tell you that Indentured Servants were treated horribly, and probably more horribly than the African Slaves.   Indentured Servants were much less expensive than the African Slaves, and therefore, from an economic stance, more expendable.

Australia was originally a penal colony, where primarily Debtors, but also violent criminals, were sent to serve their sentence.

Indentured Servitude is an expression of Slavery that is still practiced in this world, and is predominantly practiced in India, and in parts of Africa.

That is why Bankruptcy is important.

Image ID : Luca Bertolli