Purpose of Bankruptcy

The primary purpose of bankruptcy is:

(1) to give an honest debtor a "fresh start" in life by relieving the debtor of most debts, and

 (2) to repay creditors in an orderly manner to the extent that the debtor has the means available for payment.

Bankruptcy allows debtors to be discharged from the legal obligation to pay most debts by submitting their non-exemp t assets, if any, to the jurisidiction of the bankruptcy court for eventual distribution among their creditors. During the pendency of a bankruptcy proceeding the debtor is protected from most non-bankruptcy legal action by creditors through a legally imposed stay. Creditors cannot pursue lawsuits, garnish wages, or attempt to compel payment.

 History

In the Hebrew Scriptures, Moses Laws prescribed that one "Holy Year" or "Jubilee Year " should take place every half a century, when all debts are eliminated among Jews and all debt-slaves are freed, due to the heavenly command.

Moreover, the Hebrew (or Jewish) law of debt forgiveness can be found in the Bible at Deuteronomy 15:1-2 which instructs a release of debt every seven years.

In ancient Greece, bankruptcy did not exist. If a father owed (since only locally born adult males could be citizens, it was fathers who were legal owners of property) and he could not pay, his entire family of wife, children and servants were forced into "debt slavery", until the creditor recouped losses via their physical labour. Many city-states in ancient Greece limited debt slavery to a period of five years and debt slaves had protection of life and limb, which regular slaves did not enjoy. However, servants of the debtor could be retained beyond that deadline by the creditor and were often forced to serve their new lord for a lifetime, usually under significantly harsher conditions.

The word bankruptcy is formed from the ancient Latin bancus (a bench or table), and ruptus (broken). A "bank" originally referred to a bench, which the first bankers had in the public places, in markets, fairs, etc. on which they tolled their money, wrote their bills of exchange, etc. Hence, when a banker failed, he broke his bank, to advertise to the public that the person to whom the bank belonged was no longer in a condition to continue his business. As this practice was very frequent in Italy, it is said the term bankrupt is derived from the Italian banco rotto, broken bench (see e.g. Ponte Vecchio). Others choose rather to deduce the word from the French banque, table, and route, vestigium, trace, by metaphor from the sign left in the ground, of a table once fastened to it and now gone. On this principle they trace the origin of bankrupts from the ancient Roman mensarii or argentarii, who had their tabernae or mensae in certain public places; and who, when they fled, or made off with the money that had been entrusted to them, left only the sign or shadow of their former station behind them.

Bankruptcy is also documented in the Far East. According to al-Maqrii, the Yassa of Genghis Khan contained a provision that mandated the death penalty for anyone who became bankrupt three times.

The characteristic discharge of debts was introduced to Anglo-American bankruptcy with The Statute of 4 Anne ch. 17 in 1705, where the discharge of unpayable debts was offered as a reward to bankrupts who cooperated in the gathering of assets to pay what could be paid. Bankruptcy Reasons