Ohio University, USA
In 1800, the United States Congress penned the country's first bankruptcy laws, which, not surprisingly, paralleled those of the United Kingdom. Bankruptcy was limited to businesses, and the principal objective was to ensure that any assets recaptured from debtors were equally distributed among creditors. The financial well-being of the creditor, rather than the debtor, was the focus.
Fast-forward a little over 200 years. In the United States today, there are six different types (or chapters) of bankruptcy; each type is described within the corresponding chapter of the US Bankruptcy Code. Approximately 99 percent of US bankruptcies are either Chapter 7 or Chapter 13, the overwhelming majority of which are considered “personal” bankruptcies, filed by individuals and families rather than by corporations or municipalities. Debtors who file Chapter 7 relinquish all their eligible assets in exchange for discharge of their debts. Chapter 13 requires debtors to repay a portion of their debts, usually over a five-year period, after which time the remaining debt is discharged. Unlike two centuries ago, the primary purpose of bankruptcy today is to protect debtors from the collection attempts of their creditors.
The number of Americans filing bankruptcy continued a relatively unabated climb throughout the 1980s and 1990s. In 1996, a notable milestone was reached: more than one million petitions were filed ...