INSOLVENCY (from insolvent, from in-, not + so/vent, from Lat. solrere, to solve, relax, from se-, apart + lucre, Gk. Vett', lyein, to loose). As a legal term, the legal status of (1) any one who cannot pay his debts as they mature; (2) one who has been brought within the juris diction of the insolvency laws. The earliest in solvency statute in England is eh. 20 of 22 and 23 Charles II., passed in 1670. Its preamble recites: "Forasmuch as very many persons now detained in prison, are miserably impoverished, either by reason of the late unhappy time, the sad and dreadful fire, their own misfortunes, or otherwise, so as they arc totally disabled to give any satisfaction to their creditors, and so be come, without advantage to any, a charge and burden to the kingdom, and by noisomeness (in separably incident to extreme poverty) may be come the occasion of pestilence and contagious diseases, to the great prejudice of the kingdom." It is apparent from this preamble that the cruel fiction that a person was guilty of a breach of the peace who failed to pay a judgment debt, and the inhuman practice, attendant thereon, of arresting and imprisoning the debtor, had worked badly and threatened to produce a pestilence. Ifence Parliamentary interference, making pro vision for debtors' securing release from 'durance vile,' upon surrendering any remnant of property they might have, and making an oath to their poverty and their honesty. This was the begin ning of remedial legislation, which, within the last century. has resulted in abolishing im prisonment for honestly contracted debts.
From 1670 to 1861 insolvency statutes. insol vency proceedings, and insolvency courts were entirely distinct from bankruptcy (q.v.) statutes, proceedings, and courts. The leading features of English bankruptcy laws wetie: (I) They ap plied to traders only; (2) proceedings under them were instituted by creditors for the com pulsory distribution of the debtor's assets; (3) such proceedings resulted in the discharge of the honest bankrupt froni his debts. On the other hand, insolvency statutes (I) applied to all debtors; (2) proceedings under them were volun tary, that is, were instituted by the debtor; (3) they might. result in discharging, the insolvent's from jail. but they left his future acqui sitions liable for old debts.
In MI the bankruptcy statutes were extended to include non-traders. and insolvency proceed ings were abolished. Since that date, insolvency, as distinguished from bankruptcy. means that
a man has ceased, or is unable, to pay his debts as they come. due. In this country the sharp distinction between the two terms which existed in England until MI has never been sanctioned by either legislative or judicial usage. Speaking in general terms, we may say that bankruptcy has been applied to statutes on the subject passed by Congress, and to proceedings thereunder; while insolvency has been applied to State statutes dealing with insolvent debtors. Even prior to the Revolution, the Colonies were accus tomed to legislate for the relief of debtors, but their statutes, although providing at times for the discharge of the insolvent from all his debts, after the manner of bankruptcy statutes in the mother country, were called insolvency statutes. After the adoption of the Federal Constitution, with its grant of power to Congress to estab lish uniform laws on the subject of bankruptcies, it was natural that the colonial nomenclature should be continued by the States, even when adopting comprehensive bankruptcy statutes, such as have existed for many years in a number of the States. These laws, as has been stated in the article on 13ANKRUPTCY, were not abolished by the Federal statute of 1898, but their oper ation, so far as it conflicts with that of the Federal law, is suspended.
State statutes relating to insolvency have been very divergent, and from some points of view very unsatisfactory. They may be divided rough ly into five classes, although in some States statutes falling within two or more of these classes will be found: (I) Simple insolvency laws; (2) statutes regulating general assign ments for the benefit of creditors; (3) those providing for the distribution of the estates of insolvents for their discharge from debts, in vol untary proceedings only; (4) those providing for discharge from debts under general assign ments; (5) true bankruptcy statutes, applying to all debtors and providing for voluntary and involuntary proceedings. As the States are pro hibited from passing any law impairing the obligation of contracts, and as State legislation cannot operate to discharge a debtor from lia bilities to creditors outside the State, without their consent, such legislation can never perform the functions of a Federal bankruptcy law. Con sult: Bishop, Treatise on the Law Relating to Insolvent Debtors (New York, 1895) ; and "In solvency Legislation," 35 Canadian Law Journal, 179.