Bankruptcy law in the United States can be traced as far back as 1789 when Congress

was given the power, under Article I, Section 8, Clause 4, to legislate uniform laws on the
subject of Bankruptcies throughout the United States.
1
However, it wasnt until the early 1800s
that bankruptcy law really began to surface in the United States. The necessity for bankruptcy
law grew out of a lack of protection for the consumer that found their life in financial ruin. Prior
to the creation of Bankruptcy laws debtors were often ruthlessly punished with loss of property
or, in some cases, imprisonment. The first example of bankruptcy law was The Bankruptcy Act
of 1800 passed on April 4, 1800.
2
A result of the depression of 1797, the act provided only for
creditor-initiated proceedings and applied only to traders, merchants, and brokers. According to
the act, a district court judge could, after receiving petitions from two separate creditors
concerning debts of more than $1,000, appoint a commission to decide the case.
3
The act allowed
for the sale of the bankrupt's assets to satisfy creditors, permitted the bankrupt to retain a
percentage of their assets, and established that the consent of two-thirds of the creditors could
discharge the bankrupt from any unsatisfied indebtedness. Unfortunately, although the act was
enacted with the intent of being a 5-year measure, public dissatisfaction led to its repeal in 1803.
4

After 1803, there was much legislation that led to the bankruptcy law that we know today,
however, the most important change came with the Bankruptcy Reform Act of 1978.


1
The University of Chicago. Article 1, Section 8, Clause 4 (Bankruptcy)
2
Tabb, Charles Jordan. The History of the Bankruptcy Laws in the United States.
3
National Archives and Records Administration. "FEDERAL COURT RECORDS:Part 03."
4
National Archives and Records Administration. "FEDERAL COURT RECORDS:Part 03."