History of Bankruptcy Laws

It has been observed, "He who has not learned from history is bound to repeat it." Accordingly, we summarize a review by Todd J. Zywicki of David A. Skeel, Jr.'s book: Debt's Dominion: A History of Bankruptcy Law in America. Instead of being just a legal history book, it is "a comprehensive analyses of the past, present and future of bankruptcy in America. Skeel divides the history of bankruptcy law in America into three historical stages: the Nineteenth Century, the era of the 1898 Bankruptcy Act and the Great Depression, and the era of the 1978 Bankruptcy Code." Changes in bankruptcy law and its enforcement are a product of political considerations as much as economic analysis. However, the tools of economics are critical to understanding and evaluating the effects of legislation. His analysis has "an analytical edge that prior historical studies of American bankruptcy law has lacked."

Over the years, bankruptcy laws have reflected "the clash of three sets of interests: prodebtor ideological interests (often spearheaded by law professors), creditors, and bankruptcy professionals (including bankruptcy judges). Over the past decades" the dominant course of evolution of American bankruptcy law has been towards increasingly-generous bankruptcy laws that provide strong incentives for both individual and corporate debtors to file bankruptcy.

After reviewing the socio-economic history of bankruptcy legislation, Zywicki provides his own assessment of the outlook for the future course of bankruptcy law. In addition to the influential factors already discussed, a new element has been added to the debate: "an ideology of personal responsibility ushered in by the Republican takeover of Congress in 1994 that has offset the traditional dominance of prodebtor ideology." In addition, creditors' heavy losses resulting from the dramatic growth in bankruptcies have motivated creditors to support bankruptcy reform. Not only is Zywicki confident that our bankruptcy laws will reflect an ideology of personal responsibility and creditors' concerns, but he also argues that the resulting bankruptcy reform in the United States will serve as a global model to modify and replace prodebtor bankruptcy laws.