Bankruptcy Policy Rationales in the 20th Century
Over my last posts, we discussed the bankruptcy regimes in the United States up to the Chandler Act of 1938. It is worth taking a moment to plot the policy concerns over those periods.
Originally, bankruptcy suited creditors more than debtors. Bankruptcies could be filed involuntarily and were primarily a mechanism for creditors to recoup actual or potential losses. Bankruptcy only really suited debtors in that they might not be jailed – though they would be left insolvent.
Over time, the policy rationale drifted towards benefiting debtors. The idea that debtors deserved a “fresh start” became more prevalent. Furthermore, consumers were offered protection over and above secured and unsecured creditors.
In the modern era, bankruptcy is formulated to be a fresh start for debtors, a chance for businesses to reorganize, and a method to distribute available funds to creditors fairly.
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If you are interested in the history and philosophy of the economy, bankruptcy, and debt, stay tuned for my blog posts. And, if you are thinking about filing, reach out to us at www.lifebacklaw.com.
