- American bankruptcy law, along with the laws of most industrialized countries, based itself primarily on the tradition of English bankruptcy law. English bankruptcy law helped to codify the involuntary surrender of property belonging to debtors in order to compensate creditors for their losses. Most of the first codified English bankruptcy laws appeared in the 1500s and applied to merchants and traders. The presumption was that insolvency was a deliberate act more akin to fraud or an unwillingness to pay debts than an unfortunate, unplanned circumstance.
- American bankruptcy law took a different approach. Beginning in 1800, a short-lived bankruptcy act still treated debtors as a form of criminal. Debtors were still imprisoned, but could not be legally put to death for insolvency. The act also forgave certain classifications of debtors, permitted the discharge of debts and allowed debtors to manipulate friendly creditors into giving them better terms. Other short-lived bankruptcy acts during the 1800s gradually gave debtors more rights and established the concept of voluntary bankruptcy. It also expanded bankruptcy to include all debtors, merchants and non-merchants alike.
- The Bankruptcy Act of 1898 was the first major permanent piece of bankruptcy legislation. It remained in force with a few amendments for eighty years. This legislation contained debtor protections that had not previously existed in American bankruptcy law. The types of debts allowed to be discharged and the circumstances under which they could be discharged were significantly expanded, creating the impetus for the idea of the bankruptcy as a fresh start. Corporations were the only groups denied discharge. The Chandler Act of 1938 amended the 1898 law and clarified the forms of bankruptcy to include the now familiar Chapters 7, 11 and 13.
- In 1978, the first major revision of bankruptcy law since 1898 occurred. The Bankruptcy Reform Act of 1978 modified guidelines regarding the administration of bankruptcy cases by the court. It expanded the role of trustees, which focused the efforts of judges on presiding over the case. The act also promoted the use of Chapter 13 for individual debtors. Another reform act in 1986 lead to the merge of Chapters 10 and 11 into a single Chapter 11.
- In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act placed restrictions on debtors in order to discourage the abuse of Chapter 7 discharges by individuals. It created a test for debtors that steered certain debtors toward a Chapter 13 bankruptcy that required repayment of debts, while allowing others to file Chapter 7 bankruptcy and fully discharge eligible debts. It also created required financial and credit counseling for those declaring bankruptcy to prevent future re-filings.
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