Bankruptcy Law in the United States Has Developed Over Time

Bankruptcy law in the United States has gone through many changes, most recently in 2005 with the passage of a law that tightened restrictions on people filing for Chapter 7 bankruptcy. But that is only the latest development in a set of laws that are almost as old as the nation itself.

The United States Constitution gives Congress the power to create laws regarding bankruptcy, a concept received from English law. Article I of the Constitution provides that Congress may make “uniform laws on the subject of Bankruptcies,” and the body first made use of the power in 1800, passing a law that applied only to traders and was strictly an involuntary procedure. It was repealed three years later.

American concepts of bankruptcy law were incorporated into the 1833 Roberts Treaty with Siam, but voluntary bankruptcy in the United States did not develop until 1841. Bankruptcy law developed further in the 19th century, leading to the passage of the Bankruptcy Act of 1898, which is the basis of modern bankruptcy law.

The Bankruptcy Act of 1898 is also known as the Nelson Act, after Senator Knute Nelson of Minnesota, who was instrumental in enacting it. The Nelson Act provided the first lasting legislation that allowed companies to protect themselves from creditors.

In 1938, the Chandler Act superseded the Nelson Act, providing greater access to the voluntary system and improving the position of debtors. Under the Chandler Act, the Securities and Exchange Commission became the body responsible for administrating bankruptcy law.

In 1978, major changes were made by the establishment of the Bankruptcy Code, also known as the Bankruptcy Reform Acto of 1978. Several changes were made to the law, the most important of which was establishing bankruptcy courts. The new courts were essentially free-standing, though under the auspices of federal district courts. This raised Constitutional questions of judicial authority in the 1982 case of Northern Pipeline Co. v. Marathon Pipe Line Co., which were not resolved until Congress acted again in 1984.

Further reforms were enacted in 1986, making changes in the law as it applies to family farmers, and in 1994, altering provisions of bankruptcy law that apply to the mortgage banking industry.

The most recent development in bankruptcy law is the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act. The new law tightened restrictions on Chapter 7 filings by consumers, though some may use Chapter 13 instead. The law was thought by many to be a victory for the banking and credit card industry, which lobbied heavily for the changes.

Today, after centuries of reform, bankruptcy law still provides significant protections for debtors.

O. Reginald (“Reggie”) Osenton is the Owner and President of Osenton Law Offices, P.A. If you need a Brandon bankruptcy lawyer, Tampa bankruptcy lawyer, or Tampa bankruptcy attorney, call 813.654.5777 or visit

Tagged with: , , , , , , ,