By Theresa Rose DeGray
Bankruptcy
Theresa Rose DeGray
Black’s Law Dictionary defines the term “bankruptcy” simply as insolvency. I often explain to my clients that it basically means you owe more than you are worth. People who owe debts and file for bankruptcy protection are called “debtors.” The people and companies that are owed the money are called “creditors.”
They say the word “bankruptcy” stems from the Latin term bancus ruptus which roughly translates to “broken bench.” That was based on the symbolic breaking of the bench on which the banking of the day was performed when the bank ran out of money to lend.
The formal process of bankruptcy dates back to the first bankruptcy laws enacted in England in the 16th century during the reign of King Henry the VIII. That is when defaulting on debt was thought to be a criminal act. One could be punished by being sent to debtor’s prison, or worse: sometimes debtors’ ears were chopped off. Luckily, that was all done away with around the time of the French Revolution, and a more civilized system was created to protect the insolvent from their creditors.
Ratified in 1789, the US Constitution states in part at Article 1, Section 8, Clause 4, “To establish…uniform Laws on the subject of Bankruptcies throughout the United States.”
The first official but rather primitive bankruptcy laws were seen in the US in 1800. Around that time an imprisoned debtor and attorney at law took up the cause. His name was William Keteltas, and he wrote pamphlets – prison newspapers – called Forlorn Hope, advocating for prison reform.
In his treatise, Republic of Debtors: Bankruptcy in the Age of American Independence, Bruce H. Mann wrote that prisoners whose debts would now be forgiven as a result of the new laws gathered, drinking toasts and exclaiming, “The bankrupt law, this Godlike act!”
Since then, the formal bankruptcy system has undergone many iterations and has become rather sophisticated. I won’t bore you with the details of each one of them from 1803, 1841, 1867, 1898, 1933, 1934, 1978 and 1994. But I will tell you that the last overhaul of the system came in 2005 when then-President George W. Bush signed into law the the Bankruptcy Abuse Prevention and Consumer Protection Act (also known as BAPCPA and pronounced by some as “bap-see-pa”).
I was admitted to practice law in 2006 and filed for personal bankruptcy relief in 2009, so I have only ever operated under BAPCPA.
With it, BAPCPA brought many changes, including the requirements of credit counseling before filing and debtor education classes after filing, as well as the means test (which is the way people qualify for bankruptcy). In effect, BAPCPA made it more difficult for people to file bankruptcy. I will dig deeper into many of these requirements and qualifications in future columns.
Throughout the history of bankruptcy in America, there have been some very famous filers, including a few US presidents: Abraham Lincoln and Donald Trump. Other famous filers have been Connecticut’s own P.T. Barnum, Walt Disney, rapper 50 Cent and financial guru Dave Ramsey.
Bankruptcy is the ultimate fresh start. It literally wipes the slate clean and lets folks start over as if they were born again and businesses reorganize. Without it, we may never have had one of the greatest American presidents (Lincoln), the greatest show on earth (Barnum) or the happiest place on earth (Disney).
The biggest news to hit the bankruptcy scene in Connecticut came in 2021 when the homestead exemption was raised from $75,000 to $250,000. Exemptions are a set of protections used to save certain pieces of property, whether real, personal or mixed, from liquidation.
Currently the Connecticut homestead exemption’s change is on appeal and lawyers like me who represent people in bankruptcy are impatiently awaiting a decision.
Theresa Rose DeGray practices law in Orange and can be reached at TRD@ConsumerLegalServicesLLC.com or 203-713-8877.