Collier's New Encyclopedia (1921)/Bankruptcy Laws

BANKRUPTCY LAWS, regulations passed by a competent authority with a view to distributing the property of an insolvent equitably among his creditors and free the debtor from further obligation. In England, before 1841, only a tradesman could be a bankrupt. The distinction was then abolished. It was abolished in the United States in 1869. The act “to establish a uniform system of bankruptcy throughout the United States,” was passed by both houses of the 55th Congress, and by the approval of President McKinley, became a law on July 1, 1898. It was subsequently amended in 1903, 1906, 1910, 1911, 1915, and 1917.

The provisions under which a man can be thrown into bankruptcy against his will are as follows: (1) Where a man has disposed of his property with intent to defraud. (2) Where he has disposed of his property to one or more creditors to give a preference to them. (3) Where he has given a preference through legal proceedings. (4) Where a man has made a voluntary assignment for the benefit of his creditors generally. (5) Where a man admits in writing that he is bankrupt. The last two provisions are practically voluntary proceedings. Under the common law, a man is considered insolvent when he cannot pay his debts when they are due; under the new law, he is deemed insolvent only when his property, fairly valued, is insufficient to pay his debts. Only two offenses are cited under the new law: one when property is hidden away after proceedings in bankruptcy have been begun, and the other when perjury is discovered. Discharges are to be denied in only two cases: one, in which either of the offenses detailed has been committed, and the other, when it is shown that fraudulent books have been kept. The term of imprisonment for either of these offenses is not to exceed two years.

The law provides a complete system throughout the United States, and for its administration by the United States courts in place of the different systems formerly in existence in the various States administered by State courts. In bankruptcy proceedings, a bankrupt debtor may turn over all his property to the court, to be administered for the benefit of his creditors, and then get a complete discharge from his debts. A bankrupt may of his own motion offer to surrender his property to the administration of the United States court and ask for his discharge in voluntary bankruptcy, or creditors may apply to the court to compel a bankrupt to turn over his property to be administered under the act for the benefit of the creditors in voluntary bankruptcy. The bankrupt who has turned over all his property and conformed to the provisions of the act, is entitled to a judgment of court discharging him from any future liability to his creditors.

Provision is made in the act for allowing bankrupts to compromise or settle with their creditors by a proceeding known as composition proceedings, whereby, if a bankrupt and a majority of his creditors agree upon some basis of settlement, the same, if approved by the court, shall become binding upon all creditors.

Source: Collier's New Encyclopedia 1. (1921) New York: P.F. Collier & Son Company. 408.