Bankruptcy Legislation

Congress also formulated new bankruptcy legislation in the wake of the Civil War. Once again, the legislation reflected the often competing demands of different economic interests. Debtors wanted to free themselves of commitments that they could not meet; creditors wanted to ensure that, in hard times, they would receive back the money they had lent out in flush times. Northeastern businessmen, moreover, expected any new bankruptcy act to allow them to reclaim some portion, no matter how small, of the debts lost to southerners as a result of the Civil War.

The Bankruptcy Act of 1867 therefore satisfied no one entirely and failed to bring the uniformity in debtor-creditor relations demanded by expanding interstate commerce. Merchants disliked the law because courts construed its somewhat vague provisions to mean that "insolvency" occurred not when a firm lacked assets to pay debts but when it was impossible for it to pay in the course of ordinary business. Once a merchant failed to meet a commitment, a creditor could push him into involuntary bankruptcy. The 1874 revision of the act permitted debtors to submit a plan for

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working out their debts over a period of years, thus preventing creditors from seizing assets of a viable company. The law remained controversial, however, and Congress repealed it four years later.

New legislation in 1898 stemmed directly from frustration within the business community over uniform national standards of bankruptcy. National bankruptcy legislation was also a reform pressed by the new American Bar Association, whose founding charter in 1878 dedicated it to "advance . . . uniformity in legislation." ³⁴ The professional bar and the business community by century's end had a mutual interest in a uniform system of national laws that promised a stable economic environment. The Panic of 1893, which visited heavy damage on debtors, awakened them to the value of national legislation.

The 1898 act provided that a wage earner or "a person engaged chiefly in farming or the tillage of the soil" could not be forced into involuntary bankruptcy. ³⁵ The law was particularly important in establishing the priorities to be followed in the distribution of assets. Although it permitted federal judges to follow long-established state priorities, it set forth certain federal requirements, the most important of which was that "workmen, clerks, or servants" were to have first claim based on wages due them within three months of the commencement of bankruptcy proceedings. ³⁶ The new law took into account the interdependent nature of the maturing industrial economy and the need to restore promptly the purchasing power of insolvent debtors.

Date: 2015-01-29; view: 665