If filing for bankruptcy resulted in a person losing everything the debtor owned, with everything being sold to pay back creditors, the debtor would be forced back into debt to replace necessities, such as a home, a car, furniture, appliances, etc. By allowing the debtor to keep assets, while removing the obligation to pay back debts, the law allows the debtor to truly have a fresh economic start in life. Our bankruptcy laws are intended to be a remedy for persons who have fallen heavily into debt, usually through no fault of their own. Among the leading causes of bankruptcy are large medical bills, loss of employment, and divorce.

America’s founding fathers included provisions for bankruptcy in our Constitution, authorizing Congress to enact bankruptcy laws, alongside of the power to wage war and levy taxes. In that era, debtors in Great Britain were regarded as criminals, and failure to repay creditors would land a debtor in prison. “Debtors’ prison” was obviously not a reasonable way to get creditors paid, since a debtor could not earn money to pay back creditors while rotting in a jail cell. Imprisoning debtors served only to punish them, not to help creditors. Our founding fathers did not want the English tradition of Debtors’ Prison to be adopted in our new country.

The problem of how to solve overwhelming debt has existed for thousands of years. About 4,000 years ago, the ancient Phoenicians are believed to have introduced the concept of interest-bearing debt to the world, and soon thereafter royalty in southern Mesopotamia periodically declared debt cancellations in some form. In the Old Testament of the Bible, the Book of Deuteronomy, Israelites were commanded every seven years to forgive each other’s debts. However, history is replete with examples of debtors being treated as criminals, enslaved by creditors for their inability to repay debts. The term “bankruptcy” originated with the Latin words bancus and ruptus, meaning bench and broken. Italian merchants worked from a table, or a bench, and unpaid creditors would put the debtor out of business by “breaking” his “bench,” seizing his assets to divide them among the creditors.

Our federal bankruptcy laws place limits on who is eligible to obtain bankruptcy relief, but eligible persons are permitted to be released from their debts as a remedy, rather than being treated like criminals, and the law offers a fresh start to persons who would otherwise be unable to afford necessities and to enjoy the simple pleasures of life.

According to Merriam Webster: bankruptcy is the status of a debtor who has been declared by judicial process to be unable to pay his or her debts. Note that the focus in on unable to pay debts and not unwilling. Our bankruptcy laws are intended to be a remedy when ‘Life Happens.’ Among the leading causes of bankruptcy are large medical bills, loss of employment, and divorce.

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