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Bankruptcy Laws - Changes and the New Bankruptcy Law

Bankruptcy Laws - Changes and the New Bankruptcy Law

Bankruptcy laws are far from being set in stone

Some believe that bankruptcy laws should be changed to encourage fewer debtors to choose the costly liquidation of Chapter 7, and that more people should prepare for repayment plans through Chapter 13.


All bankruptcy cases are handled by the United States Bankruptcy Court system. The federal court decides and enforces all bankruptcy laws, removing the matter from the hands of the states. The Constitution guarantees that bankruptcy laws remain the same across the country - Article I, Section 8 sets out to "establish uniform laws on the subject of bankruptcies throughout the United States". Title 11 does allow states to govern their own laws concerning debtors and creditors. It also allows states to choose between using federal exemptions or their own state exemptions and, in some cases both. You can find out more about state-specific bankruptcy laws from your local bankruptcy court.

Bankruptcy in the United States can be either voluntary or forced on you by your creditors.

If it is your decision to file, your creditors have to go to court if they want debt repaid. If creditors bring you to court for bankruptcy, it demonstrates they've given up hope on being paid voluntarily and believe they can fight for the money in court. On the bright side, bankruptcy laws are formulated to save debtors and creditors as much money as possible and have been revised through centuries to become what they are today.

How bankruptcy laws have changed over the years

Frank Zappa once said, "The United States is a nation of laws: badly written and randomly enforced." As the intricate weave of bankruptcy laws prove, Zappa wasn't too far from the truth. The entire Bankruptcy Code, located under Title 11 of the United States Code, can appear as clear as Sanskrit to the average American.

Although bankruptcy has existed for as long as people have been unable to pay debt, it wasn't until the Bankruptcy Act of 1898 that the United States had a specific law protecting businesses from creditors. This act became the base for modern bankruptcy laws.

The Great Depression, however, shook the foundations of the country and the law had to be redesigned almost overnight to accommodate the sudden swell of the destitute. The Chandler Act, passed in 1938, was the last piece of legislation before World War II.

Bankruptcy picked up again in the late 1970s, so the law was refurbished in 1978. Then it boomed in the 1980s and 90s and the law was again revised. These changes stuck until the law was redesigned once again in 1994.