Drive anywhere in Suffolk or Nassau County, and you will see the signs of a depressed economy: countless for-sale signs, vacant businesses, foreclosed homes, and quiet streets.  These signs tell of consumers hunkering down- a widespread withdrawal from a grievously injured economic system.  It can be during times such as these, when things might seem hopeless, that we can actually be thankful for a thing like bankruptcy.  While bankruptcy is a sensitive and personal issue for most people, it can also be an interesting phenomenon.  For instance, have you ever wondered how bankruptcy came about?  Who invented this consumer protection concept, and why? 

When the Montauk and Rockaway Indians were still hunting and trading on Long Island, bankruptcy had already been an established practice for thousands of years.  In fact, in Ancient Greece, there was even a type of Chapter 13 “reorganization.”  Modern Chapter 13 allows a debtor to reorganize his debts with a lower interest rate and total amount.  In Ancient Greece, only men were permitted to work.  If a man fell behind in his bills, a creditor could petition the local court to have the Man indentured as a debt-slave.  He would be required to work for the creditor until the debt was repaid.  However, being that a man’s family was considered his property, wives and children were indentured as well; often for many years.  This property rule was a frightening idea for slaves owned by the debtor, as they would forever belong to the creditor as part of the “bankruptcy.” 

In Roman times, individuals who provided financial services such as currency transfers or loans would operate at a bench in a public place.  In the event they went bankrupt, (or simply ran off with their client’s money) the bench would be broken to indicate the vendor was no longer in service.  This is where the term bankruptcy came from: the Latin words for broken bench.  Many individuals who went bankrupt naturally or were “caught” going bankrupt would often be penalized with harsh prison sentences. 

In the time of the Inquisition, Phillip II of Spain inherited a country in trouble.  Already operating with a deficit, Phillip engaged the country in a long series of wars that depleted Spain’s resources even further.  In addition, Spain’s population at the time was small, and spread in thin pockets across the country, which made the collection of taxes quite difficult.  As a result of all this financial duress under Phillip II’s rule, Spain became the first country to declare national bankruptcy.  In fact, during the height of the Inquisition, Phillip II declared bankruptcy several more times.

In colonial America, a bankruptcy usually meant serving time in jail.  Even this was uncertain however, as the original colonies soon abandoned practices originally stolen from Great Britain.  Because communication and coordination was so difficult in the early history of the United States, this led to a wide array in the rules and consequences of a bankruptcy from region to region.  In some places, you might be forgiven your debt, with certain restrictions.  In other regions, you could do hard time in a primitive jail. 

Throughout the eighteenth century, bankruptcy rules and practices changed frequently, and sometimes did not exist at all.  Finally, the 1898 Bankruptcy Act was passed, and bankruptcy rules across the country gained uniformity.  The rules under this act shifted the balance of benefits to the consumer. 

Since the Bankruptcy Reform Act of 1978, bankruptcy has largely remained as it is now.  There have been other key changes to the Act- in 1984 and 2005, for instance, but bankruptcy continues to be a way to start over for people who have no options left.  Everybody deserves a second chance, and by studying the history of bankruptcy, we can clearly see that ancient and modern societies alike have agreed that there should be financial relief and redemption in some way.     

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This entry was posted on Friday, November 14th, 2008 at 7:23 am and is filed under Long Island Bankruptcy, Long Island Law Firm, Nassau & Suffolk County. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.