The Emergence of Bankruptcy

The Bankruptcy Act of 1841.

In the wake of the Panics of 1837 and 1839, Congress sent the White House a new bill to be signed into law: The Bankruptcy Act of 1841. See Daniel Walker Howe, What Hath God Wrought: Transformation of America, 1815-1848, 593. From then on, bankruptcy would be part of American life, providing an option for when debts become overwhelming.

Congress, acting on the Constitution’s empowerment, created a uniform national bankruptcy structure with the Bankruptcy Act of 1841. See id. In contrast to current laws, bankruptcy was only available to individuals, not businesses or corporations. Id. This fact was symptomatic of a Whig Congress, “and only a Whig Congress would have passed such a law.” Id.

Democrats, while in control of Congress and the White House, would not have passed such a law. Id. The Democrats “disapproved of voluntary bankruptcy for somewhat the same reasons that they disliked bank notes; they saw it as encouraging people to borrow beyond their means and then defraud their creditors.” Id.

From 1842-43, using the Bankruptcy Act of 1841, approximately 41,000 Americans took advantage of bankruptcy. Id. These bankruptcies “chastened some of them (as Democrats thought it should); others plunged back into the whirl of commercial life (as Whigs hoped they would).” Id. citing Charles Warren, Bankruptcy in United States History (Cambridge, Mass., 1935), pt. II; Edward Balleisen, Navigating Failure: Bankruptcy and Commercial Society in Antebellum America (Chapel Hill, 2001).

Bankruptcy, a crucial option for distressed individuals and now businesses, had come about in the aftermath of the Panics of 1837 and 1839, as Americans were struggling to regain a foothold in the economy. This development in the 1840s was just one aspect of modern life emerging amidst the progress of the 1800s. Congress was still acting on some of its empowerments that were rooted in the Constitution, but also, piece by piece, modern American life was being constructed as the decades of the 1800s progressed.

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