I. Bankruptcy Before America: From Punishment to Conditional Forgiveness

The origins of bankruptcy law extend far beyond the United States. Long before the Constitution was written, English lawmakers—and before them, the Romans—grappled with how society should treat debtors.¹

In ancient Rome, debt was understood as a form of personal bondage. A debtor who failed to pay could be imprisoned by a creditor. According to legend, creditors were even permitted to carve up the body of a debtor who could not pay. Historians generally view this story as more myth than fact, but the legend itself is revealing. It reflects an early moral judgment that debt was a personal disgrace—punishable by destruction rather than forgiveness or discharge.²

English law inherited this harsh moral stance. Early English bankruptcy law was overwhelmingly pro-creditor. Imprisonment for debt was common, and bankruptcy functioned not as a remedy for debtors but as a coercive tool for collection.³ England’s first bankruptcy statute, enacted in 1542 during the reign of Henry VIII, treated debtors as quasi-criminals. Only merchants were eligible, proceedings could be initiated only by creditors, and debtors could be arrested, imprisoned, and stripped of all property.⁴

By the eighteenth century, however, England’s economy had changed. Expanding commerce and the increasing use of credit made honest failure inevitable. Merchants began to argue that punishing every failed debtor would destroy the risk-taking that commerce depended on. In response, Parliament enacted the Statute of Anne in 1705. For the first time, debtors were permitted to obtain a discharge of their debts—provided they cooperated fully and surrendered their assets. Even then, the law remained brutally severe: debtors who failed to cooperate could still be sentenced to death.⁵

Further reforms followed in 1732, when English law allowed cooperative debtors to retain some property, marking the early emergence of exemptions. Alongside bankruptcy law, a separate body of insolvency laws developed to relieve debtors from imprisonment and perpetual indebtedness.⁶ These English developments formed the legal backdrop against which American bankruptcy law would later emerge.

II. The Constitution and a Century of Crisis-Driven Bankruptcy Laws

This English experience strongly influenced the framers of the U.S. Constitution. Many were merchants, creditors, and lawyers who had seen firsthand the chaos created by fragmented debtor-creditor laws. A discharge in one state could be meaningless in another. Debtors could flee across state lines, and inconsistent rules undermined credit markets and economic stability.⁷

For these reasons, the Constitution granted Congress the power to enact “uniform laws on the subject of bankruptcies” throughout the United States. James Madison explained that uniform bankruptcy laws were essential to interstate commerce and necessary to prevent fraud when debtors or their property crossed state lines.⁸

Despite this constitutional authority, Congress did not immediately enact a permanent bankruptcy system. Instead, federal bankruptcy legislation followed a recurring pattern: Congress enacted bankruptcy laws in response to financial crises and repealed them once those crises passed.⁹

After the Panic of 1797, Congress enacted the Bankruptcy Act of 1800. Like its English predecessors, it was a creditor-initiated remedy limited to merchants, and debtors had no right to file voluntarily. The law was repealed in 1803.¹⁰

The next major statute followed the Panic of 1837. The Bankruptcy Act of 1841 marked a significant shift. For the first time, non-merchant individuals could file voluntarily, and the law introduced exemptions allowing debtors to retain certain property. After thousands of debtors received discharges, the statute was repealed in 1843.¹¹

Following another panic in 1857 and the financial devastation of the Civil War, Congress enacted the Bankruptcy Act of 1867. This law retained voluntary bankruptcy, expanded eligibility to corporations, and broadened involuntary proceedings. Northern creditors strongly supported it as a means of recovering debts from Southern debtors after the war. The Act was repealed in 1878.¹²

III. The Modern Bankruptcy System: Permanence, Reform, and Retrenchment

After further financial panics in 1884 and 1893, Congress finally enacted the first permanent federal bankruptcy law: the Bankruptcy Act of 1898. One of its most important reforms was eliminating creditor consent as a condition of discharge. For the first time, an honest but unfortunate debtor could obtain a discharge without creditor approval.¹³

By the mid-twentieth century, however, the American economy had outgrown the 1898 framework. Corporate finance became more complex, and consumer credit expanded dramatically. In response, Congress enacted the Bankruptcy Reform Act of 1978, creating the modern Bankruptcy Code. This legislation introduced Chapters 7, 11, and 13 and established a unified, permanent system for resolving debt nationwide.¹⁴

The most significant modern amendment followed in 2005, when Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act. Creditors argued that debtors were abusing the system, and the statute reflected those concerns. The law introduced the means test, tightened homestead exemptions, and made most private student loans nondischargeable absent a showing of undue hardship.¹⁵

Viewed as a whole, bankruptcy law’s history reveals a clear trajectory: from punishment and moral condemnation, to conditional forgiveness, to an uneasy modern balance between debtor relief and creditor protection. The system is more uniform and humane than its predecessors, though it remains imperfect.

Sources & Notes

  1. Charles J. Tabb, The History of the Bankruptcy Laws in the United States, 3 Am. Bankr. Inst. L. Rev. ___, at 7–8 (2023).

  2. Id. at 7–8 (discussing Roman law and extreme debtor punishments).

  3. Id. at 7–9.

  4. Id.

  5. Id.; see also Vern Countryman, A History of American Bankruptcy Law, 81 Com. L.J. 226, 228–30 (1976).

  6. Tabb, supra note 1, at 10–11.

  7. Id. at 13–14.

  8. U.S. Const. art. I, § 8, cl. 4; Tabb, supra note 1, at 13–14.

  9. Tabb, supra note 1, at 14.

  10. Id. at 14–15.

  11. Id. at 10–11.

  12. Id. at 11–12.

  13. Id. at 14.

  14. Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549; Tabb, supra note 1, at 17–18.

  15. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23; Tabb, supra note 1, at 33–34.