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A brief history of bankruptcy.

The face and circumstances of bankruptcy has dramatically changed over hundreds of years. During King Henry the VIII’s reign in England, people who were bankrupt were considered criminals and could receive punishments ranging from imprisonment to death. Today, it is still possible to be placed in jail or remain there for debt. For example, you can be put in jail, or even kept there, for not paying child-support, alimony, or release fines. However, one of the most famous jailed debtors may have been Robert Morris.

Robert Morris was a signer of the Declaration of Independence and namesake of Robert Morris University in Moon Township, Pennsylvania. Morris was a wealthy businessman who made his money from importing and exporting goods. His personal story is full of financial irony.

Morris’ success with investing and managing money served America well during the Revolution. During the American Revolution Morris loaned George Washington millions of dollars from his own savings in order to pay soldiers during the war. Additionally, he was elected as Superintendent of Finance for 4 years in order to help the country get its’ finances and credit in order.

However, even though Morris played several critical roles in managing the country’s finances one of his own investments in real estate failed. This wiped out his cash and put him in a position where he was unable to pay his debts. He was put in debtor’s prison where he stayed for 3 years where he entertained friends and fond visitors such as George Washington.

Robert Morris may have been the inspiration for America’s first official bankruptcy law enacted in 1800; one that was also repealed in 1803. 2 more times during the 1800’s bankruptcy laws were passed and then repealed. The Great Depression brought new bankruptcy protections to consumers. This was the first time debtors were offered “fresh starts”.

In 1979 new “chapters” were added. Chapter 11 for individuals and Chapter 13 for businesses allowed “reorganization” of debts which could bring fewer long term penalties. With more bankruptcy options available, the 80s and 90s saw record numbers of bankruptcies filed. The Bankruptcy Abuse Prevention and Consumer Protection Act became law in 2005. President Bush stated, “The new law will also make it more difficult for serial filers to abuse the most generous bankruptcy protections. Debtors seeking to erase all debts will now have to wait eight years from their last bankruptcy before they can file again.”

 
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