Bankruptcy Act of 1841

David A. Skeel,Jr.

Excerpt from the Bankruptcy Act of 1841

All persons whatsoever, residing in any State, District or Territory of the United States, owing debts, which shall not have been created in consequence of a defalcation as a public officer ... who shall, by petition, setting forth to the best of his knowledge and belief, a list of his or their creditors, their respective places of residence, and the amount due to each, together with an accurate inventory of his or their property, rights, and credits...verified by oath, or, if conscientiously scrupulous of taking an oath, by solemn affirmation, apply to the proper court ... for the benefit of this act, and therein declare themselves unable to meet their debts and engagements, shall be deemed bankrupts within the purview of this act.

Enacted by Congress as a result of an unsavory round of logrolling (trading votes for promises of support for pet projects), the Bankruptcy Act of 1841 (5 Stat. 440) was repealed only two years later. Nevertheless, the act introduced several innovations that have served as cornerstones for every federal bankruptcy law that followed. These innovations made the 1841 act the first modern American bankruptcy law.

The 1841 act was the second of four federal bankruptcy laws Congress enacted during the nineteenth century (the others were enacted in 1800, 1867, and 1898), and it followed the same general pattern. The two main forces leading to federal bankruptcy legislation were the onset of a major economic depression and political control by the conservative party (the Republicans or their predecessors, the Whigs and Federalists). The strongest support for federal bankruptcy legislation came from conservatives in the Northeast, who viewed such legislation as essential to establishing a commercial society. The most vigorous opponents were liberal lawmakers from the South and Midwest. They worried that federal bankruptcy legislation would threaten the stability of farming interests by, among other things, enabling Northern creditors (those to whom a debt is owed) to foreclose on farms during a temporary downturn.

The lightning rod for the 1841 act was the 1837 Panic, which devastated the American economy. Many demanded a federal bankruptcy law to address the effects of the crisis. The Whigs made bankruptcy legislation a central issue in the 1840 presidential campaign, which put the Whig candidate William Henry Harrison in the White House and gave the Whigs control of Congress. But this alone was not enough to ensure passage of the act. Almost every Democrat opposed the proposed legislation, as did a small but potentially decisive group of Whigs. The Whig leadership finally secured passage of the act by agreeing to support a land distribution bill in return for votes for the 1841 act. Almost as soon as it came together, the coalition that voted for the 1841 act started to unravel. When a small group of Southern and Midwestern Whigs defected, the 1841 Bankruptcy Act was doomed. John Tyler, who became president when Harrison died shortly after his inauguration, was much less enthusiastic about the legislation than his predecessor. Popular opinion had turned against the law, and Tyler signed the repeal legislation in 1843.

In addition to discharging (eliminating) the debts of thousands of debtors during its short life, the Bankruptcy Act of 1841 introduced two crucial innovations to American bankruptcy law. The 1800 act had provided only for involuntary bankruptcy—that is, creditors but not debtors (those who owe a debt) could file a bankruptcy petition—and it covered only merchants and traders. The 1841 act was the first law to provide for voluntary as well as involuntary bankruptcy, and it covered all individual debtors, not just merchants and traders.

The debates over federal bankruptcy law continued, and it was not until 1898 that Congress finally enacted a bankruptcy law that lasted. At the heart of this law, as with the Bankruptcy Act of 1978 that eventually replaced it, were the themes of voluntary bankruptcy and universal scope—where the law applied to everyone, not only merchants and traders—that Congress first introduced in 1841.

See also: Bank of the United States; Bankruptcy Act of 1978.

BIBLIOGRAPHY

Balleisen, Edward J. Navigating Failure: Bankruptcy and Commercial Society in Antebellum America. Chapel Hill: University of North Carolina Press, 2001.

Skeel, David A., Jr. "Bankruptcy Lawyers and the Shape of American Bankruptcy Law."Fordham Law Review 67 (1998): 497–522.

Skeel, David A., Jr. Debt's Dominion: A History of Bankruptcy Law in America. Princeton, NJ: Princeton University Press, 2001.

Warren, Charles. Bankruptcy in United States History. Cambridge, MA: Harvard University Press, 1935.

Section 4 of the act (the discharge):

[E]very bankrupt, who shall bona fide surrender all his property, and rights of property, with the exception before mentioned [i.e., certain exempt property], for the benefit of his creditors, and shall fully comply with and obey all the orders and directions which may from time to time be passed by the proper court, ... shall (unless a majority in number and value of his creditors who have proved their debts, shall file their written dissent thereto) be entitled to a full discharge from all his debts.