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Why Is Bankruptcy A Constitutional Principle?

Ever wondered why is bankruptcy a Constitutional Principle? The United States constitution has only 4,400 words. It is the oldest and shortest written Constitution of any major government in the world. Article 1, Section 8 of the constitution grants Congress the power “To establish…uniform Laws on the subject of Bankruptcies throughout the United States.” The Preamble of the Constitution explains that the purpose of the Constitution is to “form a more perfect union, establish Justice, insure domestic Tranquility, provide for the common defence [sic], promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity…” Considering the paramount import and brevity of the Constitution, it begs the important question: Why did the framers consider bankruptcy a fundamental principle of our union?

Obviously the framers considered the method of dealing with debts so important that it addressed the general method (bankruptcy) in our foundational document. Consider, in contrast that virtually every other aspect relating to the relationship of private citizens was left silent.  Why was it so important? What exactly does bankruptcy have to do with a more perfect union, justice, domestic tranquility, common defense, general welfare, or the blessings of liberty? The framers of our Constitution spent considerable time analyzing, debating, and comparing various forms of governments and laws from virtually every angle.

Historically there are several alternatives from which the framers could draw. In ancient Greece and Rome debt bondage or bonded labor was historically the normal method of dealing with debtor’s inability to repay debts. In such a structure the person who was unable to repay their debts would, either voluntarily or involuntarily, pledge their labor or services as repayment of their debt. This often led to the debtor and the debtor’s family to become essentially temporary slaves to the creditor until the debt was repaid. The duration could be quit extensive depending on the amount of debt.

Western Europe preferred debtor’s prison to deal with people who could not repay their debts. This method is rather common-sensical: the debtor would go to jail or prison for a period of time until the debt was considered repaid.  This debt method was prevalent through the mid 19th century in Western Europe. It still persists in countries such as United Arab Emirates, Hong Kong and Greece. See http://en.wikipedia.org/wiki/Debtors%27_prison.

Great Britain, from which the majority of the framers came, preferred debtor’s prisons.  With the exception of Louisiana, every other state’s common law is based on the English model. It is very curious, then, that the framers did not simply adopt the English method of dealing with debtors.  This further illustrates the importance the framers placed on dealing with debtors.

The framers’ method of debt forgiveness is based on biblical methods of dealing with debts. The Old Testament book of Levitcus required complete debt forgiveness every fifty years. See Leviticus 25:10. More importantly, bankruptcy is the only option that is consistent with the kind of “blessings of liberty” sought by the framers.

I believe the blessings of liberty is the American Dream. The ideal that liberty includes the opportunity for prosperity and success, with upward mobility attainable through personal hard work and risk-taking. Debtor prison and debt bondage both discourage risk-taking and upward mobility.  They also contribute to the so-called invisible ceiling that ensures that the lower class does not or cannot increase their social status. In this light, bankruptcy is as essential to the American Dream as private property ownership. Without bankruptcy, very few would have the wherewithal to venture entrepreneurship.

The import of bankruptcy to the American Dream encapsulated in the “blessings of liberty” explains why bankruptcy would so fundamental as to be included in the mere 4,400 words comprising our Constitution.

Russell B. Weekes, Esq. is a bankruptcy attorney in Salt Lake. His practice is focused on consumer chapter 7 and chapter 13 bankruptcy protection. This article is intended to provide general information is not to be construed as providing legal advise. Find out more at Mr. Weekes’ bankruptcy attorney profile.

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