bankruptcy and insolvency 1695-1878 l. jefferson davis, iv
TRANSCRIPT
Bankruptcy and Insolvency1695-1878
L. Jefferson Davis, IV
Settlers “took refuge… from the frowns of fortune, and the rigors of creditors. Young men reduced to misery by folly and excess, embarked for the new settlement where they had leisure to reform….”
David Ramsay, M.D., History of South Carolina, From Its First Settlement in 1670 to the Year 1808, Vol. I, 76 (1858).
The boarders were “neither clearly marked nor well understood, for they had never been settled by any public agreement between England and Spain.” David Ramsay, 1808.
• “We, the proprietors of Carolina, are utterly unable to afford our colony suitable assistance in this conjuncture; and, unless his majesty will graciously please to interpose, we can foresee nothing but the utter destruction of his majesty’s faithful subjects in those parts.”
South Carolina Debt Relief Law
An Act for the Encouragement of Planting
and Relief for Debtors- provides early relief to
debtors by fixing interest rates and allowing
repayment in commodities
Limited exemption from arrest for debt is given to
those living on South Carolina's frontier
A poor debtor's oath is passed into law to allow
certain debtors to be discharged from prison
The 1721 insolvency law is amended to allow
handicraft tradesmen to take the poor debtor's oath
1715 1725
Bankruptcy Insolvency
• Involuntary Voluntary (Operating at instance of the creditor) (Operating at instance of the
imprisoned debtor)
• Discharges the Contract Discharges the Debtor• Limited to Certain Classes Open to all Debtors
of Debtors
South Carolina Debt Relief Law
The state's most enduring insolvency law is passed.
Discharge is limited to suing creditors and creditors that agree to accept a dividend
The 1722 insolvency law is replaced with a more modern process of
schedules, examination, and broader discharge from
all debts
The 1744 law is amended on concerns of collusion with friendly creditors to only allow a discharge for
those creditors that received a distribution
The discharge provisions are amended to require a minimum distribution and an agreement by creditors
1740 1750 1760
South Carolina Debt Relief Law
The state's most enduring insolvency law is passed.
Discharge is limited to suing creditors and creditors that agree to accept a dividend
The 1722 insolvency law is replaced with a more modern process of
schedules, examination, and broader discharge from
all debts
The 1744 law is amended on concerns of collusion with friendly creditors to only allow a discharge for
those creditors that received a distribution
The discharge provisions are amended to require a minimum distribution and an agreement by creditors
1740 1750 1760
“The people of Carolina had been but a short time in the possession of peace and independence when they were brought under a new species of dependence. So universally were they in debt beyond their ability to pay, that ridged enforcement of the laws would have deprived them of their possession and their personal liberty…”
South Carolina Debt Relief Law
South Carolina takes its first step in abolishing
imprisonment for debt by adopting the Prison Bounds
Act
Following war and a riot by debtors in Camden, South Carolina adopts a series of laws considered prejudicial
to foreign creditors
A traveling minister observes the death of
debtors in a Charleston prison
South Carolina suspends suits for debt due to war
Debtors in Winton (Barnwell) County riot and burn down the courthouse. The same
day South Carolina Congressman William Smith reports that his committee
was unable to draft a bankruptcy bill as the matter
was more perplexing than first believed.
1765 1775 1785 1795
“Congress shall have power … to establish uniform laws on the subject of Bankruptcies throughout the United States.”
“The power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce, and will prevent so many frauds where the parties or their property may lie or be removed into different States, that the expediency of it seems not likely to be drawn into question.” Federalist No. 42
1800 Act
~ Involuntary
~Required debtor to commit a certain “act of bankruptcy”
~Limited to merchants and traders owing at least $1,000
~Three meetings of creditors
~Creditors liquidated the assets
~Places of holding court were not always convenient for the debtor or creditors
~Discharge conditioned on the agreement of the creditors
Federal Debt Relief Law
The Supreme Court decides the Crowninshield case
merging the laws of insolvency and bankruptcy
The Panic of 1819 causes Congress to again consider a federal bankruptcy law
Following the Panic of 1825, South Carolina Senator Robert Hayne reports a bankruptcy bill to the
Senate
Residents of Charleston urge Congress to pass a
bankruptcy law
The Supreme Court decides the Ogden case highlighting
the limitations of state insolvency law
1815 1825 1835
“There is… no bankruptcy law in this country but there are failures and insolvencies in abundance…. Insolvency… is unquestionably more common here than it is amoung an equal population in any part of England… It is however very seldom indeed that failures have occurred amoungst the long established and respectable merchants and traders of Charleston.” William Ogilby (1833)
“I hold it clear, if by discharging the debt be meant releasing the obligation of a contract, either in whole or part, that neither this Government nor that of any of the States possesses such a power. The obligation of a contract belongs not to the civil or political code but the moral. It is imposed by an authority higher than human and can be discharged by no power under heaven, without the assent of him to whom the obligation is due.”
1841 Act
~Voluntary petitions
~All classes could file
~Limited reasons to deny a discharge
~Involuntary petitions limited to merchants and traders committing acts of bankruptcy
~Distance between the debtors and court still made filing inconvenient
1867 Act
~ Voluntary petitions for all classes of citizens owning at least $300
~Blend of federal and state exemption laws
~ Compositions allowed in 1874
~Court required to be open at all times and allowed to hold session at any place within the judicial district
~Varying discharge amendments eventually requiring creditor consent for debts contracted after 1869
Federal Debt Relief Law
The Anti-Bankruptcy Law Association begins to
introduce a number of bills in the House to repeal the
Bankruptcy Act
The Bankruptcy Act is amended to exclude
railroad, insurance and banking corporations
The Bankruptcy Act is amended to except from
discharge those debts owed for the maintance or
support of a wife or child
The Supreme Court decides the Moyses case rejecting the position that the law
was unconstitutional because it applied to non-merchants and not uniform because it allowed state
exemptions
The Bankruptcy Act is signed into law
A series of economic panics in 1890, 1893, and 1896 would result in Congress considering a bankruptcy
law
1885 1895 1905 1915
Bankruptcy and Insolvency1695-1878
L. Jefferson Davis, IV
Introduction to Bankruptcy Practice in
South CarolinaHon. John E. Waites
U.S. Bankruptcy JudgeDistrict of South Carolina
The U.S. Bankruptcy Court for the
District of South Carolina
• Division of the U.S. District Court– Order of Reference
• Separate courthouse, clerk’s office & records– CM/ECF
• Appeals to District Court – report & recommendations
• Uniform Federal Law – Title 11 of the U.S. Code
• Code balances interests of debtor and creditors & types of creditors– Provides for automatic stay – Identifies property of the estate and
procedures for paying prepetition claims
• Collective Process – consolidates all claims in one court local to the debtor
Basic Concepts
• Injunction against further collection efforts
– Provides breathing spell
• Actions in violation of stay are void
• Willful violation of stay is actionable
Automatic Stay11 U.S.C. § 362
• Schedules & Statements
• Meeting of Creditors
• 2004 Examination
Disclosure
• Trustee is a fiduciary
• Appointed by the United States Trustee
Role of the Trustee
• A claim is any right to payment from the debtor
• Creditors file proofs of claim in a case
• Administrative collection process
Claims
• Provides the honest and cooperating
debtor a “fresh start”
• Legal extinguishment of prepetition debts
Discharge