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The Bankruptcy Act of 1800 was the United States' first bankruptcy law. The act was passed in response to a decade of periodic financial crises and commercial failures. It was modeled after English practice. The bankrupt estate was placed under the control of an assignee chosen by the creditors. The law was meant as a temporary measure with a five-year sunset clause. Congress repealed the law in 1803.

Background

Right before this act in the later eighteenth century bankruptcy was seen as more of a moral failure than a financial one much like how it had been in England. Many men were placed in prison if they were unable to pay back their debts to various lenders. This system was not suitable for the new nation that found a majority of its people in debt to some degree. In the beginning of the century the colonists had followed the English traditions concerning economy, which at that time meant their primary concern was conquest of land. This led the new nation into debt as a whole and many people felt this as they made investments and worked to support their households. The people did not abandon English practice but modified their plan to work on the land they has already acquired. This growing amount of debt was not abnormal in the process of American economic patterns. Different structures had to be learned by trial and error including finances surrounding land ownership, housing, fiscal disputes, and more the people had to learn how the government should seek to solve these issues. Fluctuations leading to a serious drop in stability have happened in domestic and foreign fiscal policies since the very beginning of our nation. This was the first attempt to get out of this sort of situation.

Effects

This first change made by this act was how status would be assigned. During that time individuals could not file bankruptcy for themselves but creditors and legal officials filed this against those who could not pay their debts. This act delegated these cases to district authorities and judges who would pick specific administrators who were not part of the judiciary to look over these cases and help facilitate the payments and legal ramifications. If the debtor reached a place where at least two-thirds majority of the creditors decided the debtor could be forgiven then he would be allowed a clean slate with no jail time. This two-thirds had to be counted as both two-thirds of individuals as well as that amount of the debt being payed off. This system was intended to help individuals manage their debt and have a middle man to keep creditors from hastily throwing their debtors in jail. This system was not available to all people, during the three years that this act was used only merchants were eligible to have creditors forgive their debt in this fashion.

The system was not perfect and many of the people appointed by creditors did not keep track of all the information. When President James Monroe asked for a report on how this act had played out many reported that they had either not kept their paperwork in order or did not have any to begin with. This allowed for a large amount of dishonesty and fraud. Administrators were able to pocket money or use it for other purposes with very little judicial oversight. Instead of fixing the issues surrounding debt it muddied the waters and because of this the act was repealed in three years instead of ending after 5 years as was intended. Many debtors were not able to be released from their creditors even after their cases has been filed. On top of this, many of those filed against for bankruptcy would hide different assets that they had to keep them from being taken or used to pay back the money that they owed. In this way another form of fraud was committed by the debtors themselves. Unlike future legislature that was more helpful for debtors, this act did not create the clean slate that many were hoping for. On top of this, those who were not eligible had no chance to work off the money, and even those who were eligible had to hope that their creditor would file the case and be willing to forgive the debt once it was payed up to two-thirds. In totality many people were not helped by this act, and leaders soon realized that this plan needed revisions.