Bankruptcy – What is Bankruptcy?

The roots of the word bankruptcy can be linked back to the Italian Renaissance period. Back then if a merchant was unable to pay back his debts, his creditors would get together and destroy his trading bench. This was called Banca Rotta, and from Banca Rotta, we get Bankruptcy.

Of course back then things were a little more brutal. Life was short and miserable anyway, so there was little concern for the welfare of other people, let alone people who owed you money. In England, the penalty for not paying your debts could result in a death sentence.

In the US bankruptcy laws emerged as a result of extremely tough times. Often then, when things improved bankruptcy laws were repealed. IT was until modern times that bankruptcy laws became permanent and then, amended occasionally to make them better.

The Bankruptcy Act of 1898 was the first piece of modern day legislation to extend protection to corporations from creditors and is the foundation of today's bankruptcy laws. Since 1898 there have been many acts and revisions: Bankruptcy Act of 1933 and 1934 during the Great Depression; Chandler Act of 1938; 1978, the first major overhaul since the Chandler Act; 1980 Bankruptcy Tax Act; 1984 amendments to the 1978 Act; the 1994 overhaul of the 1978 Act.

From then on things evolved and they continue to do so. Even as late as 2001 there is legislation pending to reform bankruptcy laws. This will make it more difficult to file a chapter 7, which is time consuming and costly, and then make it easier to file a chapter 13 which is a reorganization of debt that will take a lot longer to pay off, but it will get paid off.

All parties generally accept bankruptcy laws as a good thing. It kind of takes away the competition aspect and lets the debtor and the creditor work together to save both parties as much money as possible.

Therefore, investors will not be shy to invest in future enterprises, and they will have gotten back more money to do so.

It also ensures that the debtor will have a second chance at business. They say that most business owner’s failure a couple times, before they make it. Therefore bankruptcy laws give them the ability to learn from their mistakes.

Therefore you have seasoned business veterans, combines with fearless investors. Sounds like a recipe for enterprise to me.

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