The American Cyclopædia (1879)/Bankrupt

BANKRUPT (low Lat. bancus, a bench, and ruptus, broken), an insolvent debtor. In its more ordinary acceptation, bankruptcy expresses inability to pay one's debts, being in that sense the same as insolvency. The theory of bankruptcy in England until recently has been, that it was a criminal offence, and the proceeding was in form hostile to the party charged with being bankrupt. The first bankrupt law was enacted in the reign of Henry VIII., in which act the persons amenable to its provisions are described as “those who obtain other men's goods on credit, and then suddenly flee to parts unknown, or keep house, and there consume their substance without paying their debts.” In subsequent statutes the character of the bankrupt was defined with more precision, and by the term was generally understood a trader who should do certain acts specified in the statutes which were declared to constitute bankruptcy. The English bankrupt laws were wholly remodelled by act 32 and 37 Victoria, c. 71, on more humane principles. Under that act all persons may be adjudged bankrupt, whether they be traders or not. A person becomes a bankrupt when adjudged so by the court, upon the petition of a creditor having a liquidated and unsecured debt of not less than £50, or of several creditors having like debts to that amount. But before such petition can be presented, the debtor must have committed some one of the acts of bankruptcy specified in the statute, which are: 1, making a general assignment of his property for the benefit of creditors; 2, making a fraudulent conveyance, gift, delivery, or transfer of property; 3, doing, with intent to defeat or delay his creditors, any of the following acts: departing from or remaining out of England, or (being a trader) departing from his dwelling house or otherwise absenting himself, or beginning to keep house, or suffering himself to be outlawed; 4, filing in the manner prescribed by the rules of court a declaration that he is unable to pay his debts; 5, having execution for a debt of £50 or upward levied upon his goods; 6, having neglected to pay or secure or compound the prisoner's debt after having had a debtor's summons served upon him, being a trader, within seven days, and being a non-trader, three weeks after service. An adjudication founded upon any of these acts of bankruptcy will not, however, be granted unless the petition be presented within six months after the act was committed. The act upon which the petition is founded, or the earliest act of bankruptcy proved to have been committed within the twelve months next preceding the presentation of the petition, constitutes the commencement of the bankruptcy. No creditor is allowed to commence or prosecute any proceeding against the bankrupt after the adjudication unless by leave of the court, and all the ordinary remedies are taken away except those of the secured creditors in respect to their securities. Creditors must prove their demands under the bankruptcy, and for the purposes of a distribution of the property they are allowed to appoint a trustee, and also from their own number a committee of inspection for the purpose of guiding, and in some measure controlling, the trustee in the discharge of his duties. The title of the trustee relates back to the commencement of the bankruptcy. The creditors at any meeting have the right to give directions to the trustee as to the manner in which the property shall be administered by him. Property held by the bankrupt in trust, the tools of his trade if any, and the necessary wearing apparel and bedding of himself and his family—such tools, apparel, and bedding not exceeding in value £50—will not pass to the assignee; but property acquired by or devolving upon the bankrupt pending the proceedings will pass, and also the capacity to exercise or take proceedings to exercise all powers over property for his own benefit. If he is a trader, goods and chattels in his hands as reputed owner, with the permission of the true owner, will also pass to the trustee. Until the appointment of a trustee, and during any vacancy which may occur, the registrar of the court is the trustee. When the property has been realized the court declares the bankruptcy closed, and the bankrupt may apply for his discharge. This is only granted where the assets pay 10s. in the pound, or where the creditors shall have passed a resolution by a majority in number representing three fourths in value of the debts to the effect that a discharge should be granted. A discharge releases the bankrupt from all debts provable under the bankruptcy, except those which he incurred by means of any fraud or breach of trust, and those of which he obtained forbearance by means of fraud, and also those due to the crown or relating to the revenue; but of these last he may be discharged if the commissioners of the treasury consent thereto. If the bankrupt fails to obtain his discharge, a period of three years is given him during which, if he pays to his creditors such sum as, together with the dividends already received by them, make up 10s. in the pound, he is to obtain his discharge. In the mean time debts provable in bankruptcy are not to be enforced against his property; but if at the expiration of that time he has not thus obtained his discharge, debts provable under the bankruptcy stand as judgment debts against him, but without interest.—In the United States, power is conferred upon congress by the constitution to establish a uniform system of bankruptcy. When this power is exercised, it supersedes the state insolvent laws, which are in their nature similar to the bankrupt acts. It was first exercised by act of April 4, 1800, repealed Dec. 19, 1803; again by act of Aug. 19, 1841, repealed in 1843; again by act of March 2, 1867, now in force. This act embraces in its provisions any person residing within the jurisdiction of the United States owing debts to the amount of more than $300 provable under it. It contains what are called voluntary provisions, under which an insolvent debtor may himself be the petitioner for his discharge, and involuntary provisions, under which the creditors become petitioners when they believe an act of bankruptcy has been committed. No debt created by the fraud or embezzlement of the bankrupt, or by his defalcation as a public officer, or while acting in any fiduciary capacity, is barred by a certificate of discharge issued under the act. Original jurisdiction of the proceedings is possessed by the United States district courts, but registers in bankruptcy are appointed, by whom the major part of the business is transacted. Contested issues are adjourned by the registers for hearing in court, and the debtor who disputes the allegations of the creditors against him may demand trial by jury. The acts of bankruptcy enumerated are as follows: 1, departing from the state, territory, or district of which the person is an inhabitant, with intent to defraud his creditors; 2, remaining absent with the like intent; 3, concealing himself to avoid the service of legal process for the recovery of any debt provable under the act; 4, concealing or removing property to avoid legal process; 5, making an assignment, gift, sale, conveyance, or transfer of his estate, property, rights, or credits, with intent to delay, hinder, or defraud creditors; 6, being under arrest for a period of seven days on an execution upon a debt provable under the act, for more than $100; 7, being actually imprisoned for more than seven days in a civil suit founded on contract, for $100 or upward; 8, making any payment, gift, grant, sale, conveyance, or transfer of money or other property, estate, rights, or credits, or giving any warrant to confess judgment, or procuring or suffering his property to be taken on legal process while bankrupt or insolvent, or in contemplation of bankruptcy or insolvency, with intent to give a preference to one or more of his creditors, or to persons liable for him as sureties or otherwise, or with intent by such disposition of his property to defeat or delay the operation of the act; 9, a banker, broker, merchant, trader, manufacturer, or miner, fraudulently stopping payment, or having stopped or suspended, and not resumed payment of his commercial paper within 14 days. In the distribution of the bankrupt's estate the following demands are preferred: 1, the cost of the proceedings; 2, all demands owing to the United States; 3, all demands owing to the state in which the proceedings are had; 4, wages due to any operative, clerk, or house servant, to an amount not exceeding $50 for labor performed within six months next preceding the first publication of the notice of proceedings in bankruptcy; 5, all other debts which by the laws of the United States are or may be entitled to priority, in like manner as if the act had not been passed. Other demands are paid ratably, except that specific liens are not disturbed or devested, unless where created in contemplation of bankruptcy or in fraud of the law. There are saved to the bankrupt his necessary household furniture and other articles designated by the assignee, not exceeding in value $500; the wearing apparel of himself and family; the uniform, arms, and equipments of any one who is or has been a soldier in the militia or army; and any other property that is or may be exempt from levy and sale by the laws of the United States or by those of the state in force in 1867. With the exception of the exempt property, the assignment under the act carries to the assignee all the estate of the bankrupt, and dissolves all attachments of any of the property made on mesne process within four months previous to the commencement of the proceedings. A discharge is granted to the bankrupt as a matter of course unless he has been guilty of some act forbidden by the statute, or of some fraud upon creditors, or lost property by gaming, or suffered voluntary loss or destruction to his estate; but in cases commenced a year after the act went into operation, no discharge is granted unless the assets pay 50 per cent. of the debts, or a majority in number and value of the creditors assent; and in cases of second bankruptcy no discharge is granted unless the assets pay 70 per cent., or unless three fourths in value of the creditors assent, or unless the debts owing at the time of the previous bankruptcy have been paid or released. For the following acts the bankrupt is punishable, criminally: Secreting or concealing property belonging to his estate; concealing, destroying, altering, &c., books, papers, &c., with fraudulent intent; making gifts, payments, &c., with the like intent; spending any part of his estate in gaming; fraudulent omission of property from the schedule; failing to disclose knowledge of fraudulent claims against the estate; attempting to account for any of his property by fictitious losses or expenses; obtaining fraudulent credit within three months before commencement of the proceedings, and with intent to defraud creditors; making disposition of property bought on credit and not paid for, otherwise than by bona fide transactions in the ordinary way of his trade, within three months before the commencement of proceedings. The maximum punishment that may be inflicted is three months' imprisonment with or without hard labor.—In Scotland and Ireland the bankruptcy laws are in their effect substantially the same as in England. In France, the tribunal of commerce proceeds summarily to sequester the estate of a bankrupt merchant, and apply the same in payment of his debts. From the day of failure the bankrupt is divested of all title to or control over his property; his counting-house is closed, and his effects put under seal; a member of the court is appointed a commissioner to take charge of the effects, with the aid of certain agents, who have surveillance of the same until the creditors are convened for the nomination of syndics (trustees); and the debtor himself in the mean time may be imprisoned or compelled to give security to undergo examination in respect to his property. The family of the bankrupt are entitled to retain their apparel and household furniture; the wife also retains any interest belonging to her by a marriage stipulation, or which she has herself acquired by the use of her own separate estate. The proceeds of the bankrupt's estate are distributed by the syndics to the creditors; the bankrupt is subject to imprisonment, or to be condemned to forced labor, in case of fraudulent bankruptcy or of insolvency clearly traceable to imprudence or extravagance.—There are similar proceedings in all the commercial countries of Europe, some more and some less severe, but all of them being founded upon the presumption of fraud having been committed by the bankrupt, from which he is to purge himself upon a strict investigation of his affairs. In Holland he is discharged from all further liability for his debts upon getting a certificate from one half of his creditors, to whom is due five eighths of his debts.