BANKRUPTCY 1. Meaning of bankruptcy.—In ancient Rome, when a money-changer became insolvent, he was put out of business by his associates who broke the bench upon which he kept his stacks of coin. Some people believe that this rupture of the bench or bank is the explanation of the derivation of the word bankrupt. Certainly the process indicates very nearly what hap pens today. A man is insolvent; then the condition is proclaimed, not, to be sure, by the breaking of a bench, but by the signing of a decree of bankruptcy by a competent court.
Bankruptcy, then, may be defined as a process pur suant to some statute whereby an insolvent is declared a bankrupt, his property taken and equitably distrib uted among his creditors, after which he is discharged from further liability. Under the older bankruptcy acts of Anglo-Saxon jurisprudence, the object was to get the insolvent's property, but the later legislation recognizes the importance of the discharge from lia bility as a means of renewing the economic vitality and effectiveness of an unfortunate debtor.
2. Meaning of insolvency.—The law recognizes two definitions of insolvency. When a man has plenty of unliquid assets—a person is said to be land-poor for example,—and cannot pay his debts as they ma ture in the ordinary course of business, he is said to be insolvent. He may have plenty of wealth; what he needs is time to get it into the proper form to use it for discharging his obligations. If his creditors try to force the process of conversion by getting judg ments, seizing parts of the property and offering them at forced sale, the value of the property, disrupted and deprived of the opportunities of fair bargaining, may shrink to an amount actually less than the aggre gate of the indebtedness. The appointment of a re ceiver will prevent this helter-skelter seizure of prop erty, and time may be obtained make a reasonable sale. Frequently, when the true condition of the debtor is understood 'some arrangement will be made to give him a reasonable extension. Receiverships are thus a very important aid in the work of the credit man.
Another definition of insolvency contemplates a debtor whose assets are, at a fair valuation, less than his liabilities. It is this definition that is recognized by the bankruptcy law, which provides that the pre requisite of bankruptcy must be insolvency.
3. Bankruptcy and insolvency one time in England the difference between bankruptcy and insolvency was quite different from what is in dicated in the preceding section. In those days only traders became bankrupts. Gentlemen of leisure be came insolvents, and since trading was regarded as unrefined, and "tradesman" was a word which when applied to a person of gentle birth lowered his social rank, to call a nobleman a bankrupt was sufficient cause for a slander suit.
The distinction between insolvency laws and bank ruptcy laws today does not rest on these considera tions. Technically there is no difference between these laws, but by general custom the words "bank ruptcy law" in this country are reserved for the fed eral act and the words "insolvency laws" are gener ally applied to the state acts.
4. State and Federal laws.—Congress is given power to pass uniform bankruptcy laws for all states. If Congress does not exercise that power the states may have their own insolvency acts. Thus we find on the statute books of almost every state a bank ruptcy law that is inoperative because the Federal bankruptcy act has superseded it. But the opera tion of the state laws is simply held in suspense, for if Congress should repeal the Federal act, as has been done on several occasions, the state acts would im mediately spring into force.
The present Bankruptcy Act dates from 1898, amendments having been made in 1903 and 1910.
5. Two kinds of bankruptcy.—Under this act, the proceedings which result in the decree of bankruptcy are begun by filing a petition. This petition is a written document alleging the essential facts neces sary to warrant the court in adjudicating the insol vent person a bankrupt under the terms of the statute.