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A Lesson in Bankruptcy History

history of bankruptcy in arizonaThe terms “insolvency” and “bankruptcy” are often used interchangeably in ordinary conversation, but they have distinctly different meanings. A person may be insolvent without being bankrupt. Insolvency simply refers to a person’s inability to pay debts as they become due. Bankruptcy, however, refers to the legal process initiated by a debtor’s petition for debt relief, either voluntarily by the debtor or involuntarily at the behest of creditors.

From Lawrence ‘D’ Pew, Phoenix, Arizona, Bankruptcy Lawyer:  

“Many people do not know that the forgiveness of debt, which is where the concept of bankruptcy came from, was first taught in the Bible. In Deuteronomy, the Jewish people were instructed to forgive each other of their debts every seven years. This evolved into the practice known as the Year of Jubilee. In Hebrew society, this Year of Jubilee was practiced for centuries.”

As you can see from our Phoenix, Arizona, bankruptcy lawyer, the seeds of bankruptcy and debt forgiveness go back a very long time. What follows is a brief history of the development of debt relief through bankruptcy.

Debtors and Creditors under Ancient Roman Law

Your Phoenix, Arizona, bankruptcy lawyer starts with the contribution of Roman Law to the modern concept of bankruptcy.

Throughout ancient Rome, a judgment creditor could seek to have the debtor’s property and assets sequestered and sold, missio in bona. The proceeds of sale were applied to all of the debtor’s creditors (venditio bonorum), and not just applied to the judgment creditor’s claim. This proved to be a significant interference with the civil rights of merchant debtors. There were no controls over the type of property taken and sold, so a debtor could be left with absolutely nothing. Furthermore, there was no protection from unscrupulous creditors who made false reports or collected more than they were actually owed.

To protect his civil rights under Roman law, the merchant-debtor could take a proactive approach. He could voluntarily petition the magistrate in cessio bonorum and surrender his goods to pay off creditors. Although after-acquired property could still be collected until the creditors’ claims were satisfied, the debtor would not be stripped of his most basic necessities.

A knowledgeable Phoenix, Arizona, bankruptcy lawyer will explain that cessio bonorum was quite influential in the development of our exempt property laws in modern bankruptcy. Cessio bonorum is Latin for a “cession of goods,” it described a process in which the debtor voluntarily surrendered his goods to pay off creditors. When the creditors received the merchant’s goods, they would apply the proceeds from the sale of those goods to pay down their claim.

Phoenix, Arizona, Bankruptcy Lawyer Discusses Fraudulent Medieval Debts

By the Middle Ages, Italy had created a punitive system to deal with debtors who incurred obligations and then absconded or who became insolvent through fraudulent acts. These debtors were rumpentes et falliti and faced harsh penalties, including the liquidation of their estates.

Historically, the bankrupt were a disgrace. As your Phoenix, Arizona, bankruptcy lawyer can attest, debtors of this period were treated as criminals. They wore identifying clothing, were professionally sanctioned, were socially reviled, and were frequently imprisoned. In European debtors’ prisons, men and women were imprisoned in a single cell. They were incarcerated in deplorable conditions until their families provided payment sufficient to clear their debts and pay off their prison expenses.

In the late 13th Century, the Spanish Siete Partidas codified the debtor’s right to voluntarily submit to judicial asset liquidation, similar to the Roman cessio bonorum. In this framework, we really begin to see the origins of our modern bankruptcy laws. The Siete Partidas extended the voluntary judicial process of liquidation to all debtors, not just to those in the merchant class. The Siete Partidas introduced rehabilitation agreements approved by a creditor majority, even when some creditors dissented. Your Phoenix, Arizona, bankruptcy lawyer compares this to the modern Chapter 13 repayment plan.

In fact, to the Phoenix, Arizona, bankruptcy lawyer, the Siete Partidas represents a pivotal shift in the laws affecting insolvent debtors. By the 16th Century, laws dealing with defrauding and concealing debtors had spread throughout western Europe.

In the 17th Century, the highly influential Spanish Concourse of Creditors established two types of liquidation proceedings – one for merchants (commercial) and one for non-merchants (consumers) – in a unified code. This Concourse model was used in Spanish countries and was widely integrated into existing bankruptcy codes among English law countries, including the U.S. By the mid-19th Century, both England and the U.S. had codified every debtor’s right to submit to voluntary judicial proceedings.

This is what a Phoenix, Arizona, bankruptcy lawyer will explain to you when you first meet. Our modern bankruptcy laws provide us with an orderly system for managing insolvent debtors’ estates. They are designed to fairly and equitably protect the rights and interests of all the parties involved. The U.S. Bankruptcy Code has a complex well-developed system for liquidating assets, adjusting debts, and rehabilitating debtors, but it will be continuously amended as the needs of debtors and creditors in society change.

Contact a Phoenix Arizona Bankruptcy Lawyer for Advice

bankruptcy lessonThe Pew Law Center, PLLC, represents consumers who seek bankruptcy relief under Chapter 7 (liquidation), Chapter 11 (reorganization), and Chapter 13 (individual debt adjustment) of the U.S. Bankruptcy Code. With Phoenix, Arizona, bankruptcy lawyer Lawrence ‘D’ Pew, you will have the legal advocate you need to achieve your financial goals.

When you call us at 480-719-1479, we will schedule a FREE VIP Bankruptcy Consultation for you with our experienced Phoenix, Arizona, bankruptcy attorney. Contact us today, we are always here to help those in financial trouble. There is no shame or blame at the Pew Law Center. You can also go to our website and chat online with a member of our bankruptcy team, anytime 24/7.

Find out for yourself how our experienced bankruptcy legal professional can assist you. Call the Pew Law Center at (480) 745-1770 to schedule your free consultation.
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