In popular usage, the inability of a person to pay his debts, or the financial condition of one who has failed in business; as a technical law term, the status of one who has been adjudged a bankrupt. The legal position of a debtor in primitive communities is one of great hardship. He is at the mercy of his creditor, who, after exhausting the property of the debtor, may generally seize his body and force him to work out the debt or become a slave. 

With the development of society, various devices are resorted to for the amelioration of the debtor's condition, terminating, as a rule, in a more or less satisfactory system of bankruptcy, the cardinal principal of which is that one who is unable to pay his debts in full may be discharged there from upon giving up all his property for ratable distribution among his creditors.

The history of bankruptcy and insolvency legislation in England furnishes a good illustration of this statement. While it is true that there was no process of the common law by which a man could pledge his body or surrender his liberty for the payment of his debts, the courts permitted a legal fiction to grow up that a debtor who did not pay a judgment against him was guilty of a breach of the peace, subjecting his body to imprisonment by the writ of capias and respondendum.

The feelings of judges toward debtors, during that period, are disclosed by a recorded opinion of Mr. Justice Hyde, in 1663: "If a man is taken in execution, and lies in prison for debt, neither the plaintiff, at whose suit he is arrested, nor the sheriff, who took him, is bound to find him meat, drink, or clothes. He must live on his own, or on the charity of others; and if no man will relieve him, let him die, in the name of God, says the law, and so say I." A little more than a century prior to this utterance the first bankruptcy statute was passed in England. 

It shows that Parliament agreed with the judiciary in its opinion of insolvent debtors, that they were dishonest, and deserved punishment. This act (34 and 35 Hen. VIII., c. 4) was entitled, "Against such as do make Bankrupt," and recites that "divers and sundry persons, craftily obtaining into their hands great substance of other men's goods, do suddenly flee to parts unknown, or keep their houses, not minding to pay or restore to any, their creditors, their debts and duties, but of their own wills and pleasures consume the substance obtained by credit of other men for their own pleasure and delicate living, against all reason, equity and good conscience."

It then proceeded to confer upon various judicial officers power to take the offending debtors and their property; to sell the latter, and to divide the proceeds ratably among creditors. Under Elizabeth and James I., additional bankruptcy statutes were passed, all keyed to the same note of suspicion and harsh judgment of the failing debtor. The act of 21 James I. (c.19) was especially severe, providing that the debtor who could not render some just reason why he became bankrupt, should stand upon the public pillory, have one of his ears nailed thereto, and then cut off, If his failure to pay his debts was due to fraudulent practices, he might be put to death.

With the growth of English trade, the hazards of commercial enterprises were so multiplied, and the complexity of business relations so increased that this Draconian legislation against failing debtors was found to be not only unjust but impolitic. Accordingly, bankruptcy laws underwent a radical change, until, in Blackstone's time, they were considered "as laws calculated for the benefit of trade, and founded on principles of humanity as well as justice; and to that end," adds the great commentator, "they confer some privileges, not only on the creditors, but also on the bankrupt or debtor himself. On the creditors, by compelling the bankrupt to give up all his effects to their use, without any fraudulent concealment; on the debtor, by freeing him from imprisonment and discharging him from his debts, if he had been honest.

These laws, however, applied only to traders, because it was thought that they were "generally speaking, the only persons liable to accidental losses," and that it was "an unjustifiable practice for any person but a trader to encumber himself with debts of any considerable value." Those who were not traders could get relief from imprisonment for debt only to the extent provided by an entirely distinct set of statutes, those relating to insolvency. Although Blackstone describes the bankruptcy laws of his age in the most optimistic vein, deeming them, as he did almost every other branch of English law, the perfection of human reason, they have been modified repeatedly during the last hundred years. 

Thirty-eight bankruptcy acts have been passed in England, beginning with that already mentioned under Henry Viii., and, for the present, closing with the act of 1883, as amended in 1890. These statutes have been a series of experiments and although the latest had for its motto. "The estate for the creditor, not for the debtor, nor for the trustee," it cannot be considered a finality, for it has not accomplished its avowed purpose of satisfying the creditor class. This is shown by the fact that nearly one-half of the business insolvencies in England are liquidated under deeds of settlement or voluntary compositions with creditors outside of the bankruptcy court.

Under the present bankruptcy acts in England and in the United States, proceedings in bankruptcy may be instituted by the debtor or by creditors. The former is called a voluntary, the latter an involuntary, proceeding. Each is begun by filing a petition. The debtor's petition must state that he is unable to pay his debts, and is willing to surrender all of his property to the use of his creditors. Whether a person is liable to be adjudged a bankrupt upon the petition of creditors does not depend upon his ability or inability to pay his debts, but upon his having committed an act of bankruptcy. Such at least is the English doctrine; but it is modified to some extent in the United States. 

The United States Bankruptcy Statute of 1898 enumerates five classes of acts of bankruptcy: First, conveying, transferring, concealing, or removing, or permitting to be concealed or removed, any of his property with the intent to hinder, delay, or defraud any of his creditors; second, transferring, while insolvent, any of his property with intent to prefer a creditor or creditors over others; third, suffering, while insolvent, any creditor to obtain a preference through legal proceedings, and not securing the vacating or discharge of such preference; fourth, making a general assignment for the benefit of creditors; fifth, admitting in writing his inability to pay his debts, and his willingness to be adjudged a bankrupt on that ground.

After the debtor is adjudicated a bankrupt, a trustee is appointed by the creditors (subject to some supervision by the Board of Trade in England, by the bankruptcy court in this country), who becomes vested not only with all the property in possession of the debtor at the time when he was adjudged a bankrupt, but with all that he had transferred in violation of the statute or in fraud of creditors. It is quite important that the trustee's title should relate back of the adjudication. Otherwise a failing debtor could always defeat one of the main purposes of the bankruptcy statute, that of securing a ratable division of all his estate among all his creditors, by turning over his property to one or move favored creditors.

By providing for the relation back of the trustee's title, every transfer of his property made or suffered by an insolvent debtor, with intent to prefer a creditor over others, within three months in England , four months in the United States, before the filing of the petition in bankruptcy, is rendered invalid, and the property may be brought back into the estate for division among creditors. Moreover, even when a creditor has obtained security from the debtor, which is not invalidated by the statute, he is not allowed to share in the bankrupt's estate unless he turns over the security to the trustee. It is the duty of the bankrupt to make a full disclosure and surrender of his property, save such as is exempted by statute, as well as to supply a full and honest list of his creditors. 

Upon establishing their claims in the prescribed manner, the creditors are entitled to take part in the meetings provided for by statute, as well as to receive dividends. If the bankrupt's business conduct has been honest and legal he is entitled to a discharge from all provable debts, with few exceptions. He may be punished criminally for certain violations of the bankruptcy law; and a discharge from debts will be denied for various reasons. Under the present Federal statute it will be denied if he has committed an offense punishable by imprisonment, as provided therein, or if he has fraudulently destroyed, concealed, or failed to keep books of account, or records, showing his true financial condition.

The English act gives to the court a much more extended disciplinary jurisdiction over bankrupts. It provides for a searching investigation into their conduct and affairs prior to, as well as during, the proceedings, and gives to the court a very large discretion in granting, denying, or conditionally withholding a discharge. Even when a discharge is obtained, it does not relieve the bankrupt, as a rule, either in England or here, from debts grounded in fraud or other moral misconduct In this country no political disability follows an adjudication in bankruptcy. In England, however, an adjudged bankrupt is disqualified from sitting or voting in either house of Parliament, or from holding various other specified offices. This disqualification ceases as soon as the bankrupt is discharged, if the court certifies that he was free from misconduct, and at the end of five years from a discharge in other cases.

Article I., Sec. 8, of the Federal Constitution, gives to Congress power "to establish...uniform laws on the subject of bankruptcies throughout the United States." This grant of power to Congress does not exclude the States from legislating on this subject; but a Federal bankruptcy statute does suspend, while in force, the operation of a State statute covering the same ground. Congress has exercised this power but sparingly. It passed the first bankruptcy law in 1800. This was copied quite closely from the English statute of that time. As it applied only to traders, it soon became unpopular with other classes, and was repealed in 1803. 

The next venture in bankruptcy legislation by Congress was made in 1841 at the request of insolvent debtors, who, after the p anic of 1837, had become a numerous and influential class. This bill proved no more satisfactory than its predecessor, and it was repealed after a short life of two years. After the repeal of this act no serious attempt was made to pass a Federal bankruptcy law until 1864, when Congressman Jencks, of Whode Island, introduced a bill upon this subject. His very instructive speech, explanatory of its purpose and provisions, is contained in the Congressional Globe for 1863-64, at page 2636.

The bill met with serious opposition, and did not become a law until June, 1867. In 1874 it was amended in various respects. one of the changes required one-fourth in number and one-third in value of the creditors to unite in an involuntary petition. This made it very difficult for creditors to force a debtor into bankruptcy, and thereafter the proceedings were mainly voluntary. Moreover, the charges upon bankrupt estates under this law were heavy, often exorbitant, and the creditor class was disappointed in its workings. Their agitation for its repeal was crowned with success in 1878.

Twenty years elapsed before the fourth and present act was passed by Congress. It was the outcome of a compromise between the friends of a bill fashioned largely after the present English statute, and those who were either opposed to any Federal legislation on the subject, or were anxious to limit such legislation within the narrowest possible bounds. its definition of acts of bankruptcy is much narrower than that of the English statute. Even one who has committed an act of bankruptcy may defeat an adjudication by convincing a jury that the aggregate of his property is, at a fair valuation, sufficient in amount to pay his debts.

Its provisions relating to a discharge are very lax, as has been pointed out already. It secures, however, a fairly expeditious, convenient, and economical administration of bankrupt estates. While the Federal district courts have original jurisdiction in bankruptcy the statute provides for referees; who may perform many of the judicial duties in bankruptcy proceedings, and whose districts are not to extend as a rule, beyond the limits of a single county, thus making it easy and inexpensive for suitors to attend court. Consult: Brandenburg, Law of Bankruptcy (2d ed., Chicago, 1901); Bump, Law and Practice in Bankruptcy (11th ed., Washington, 1898); Baldwin, Concise Treatise Upon the Law of Bankruptcy (8th ed., London, 1900); Robson, Treatise on the Law of Bankruptcy (7th ed., London, 1894).