Bankruptcy and Insolvency1695-1878

L. Jefferson Davis, IV

Settlers “took refuge… from the frowns of fortune, and the rigors of creditors. Young men reduced to misery by folly and excess, embarked for the new settlement where they had leisure to reform….”

David Ramsay, M.D., History of South Carolina, From Its First Settlement in 1670 to the Year 1808, Vol. I, 76 (1858).

The boarders were “neither clearly marked nor well understood, for they had never been settled by any public agreement between England and Spain.” David Ramsay, 1808.

• “We, the proprietors of Carolina, are utterly unable to afford our colony suitable assistance in this conjuncture; and, unless his majesty will graciously please to interpose, we can foresee nothing but the utter destruction of his majesty’s faithful subjects in those parts.”

South Carolina Debt Relief Law

An Act for the Encouragement of Planting

and Relief for Debtors- provides early relief to

debtors by fixing interest rates and allowing

repayment in commodities

Limited exemption from arrest for debt is given to

those living on South Carolina's frontier

A poor debtor's oath is passed into law to allow

certain debtors to be discharged from prison

The 1721 insolvency law is amended to allow

handicraft tradesmen to take the poor debtor's oath

1715 1725

Bankruptcy Insolvency

• Involuntary Voluntary (Operating at instance of the creditor) (Operating at instance of the

imprisoned debtor)

• Discharges the Contract Discharges the Debtor• Limited to Certain Classes Open to all Debtors

of Debtors

South Carolina Debt Relief Law

The state's most enduring insolvency law is passed.

Discharge is limited to suing creditors and creditors that agree to accept a dividend

The 1722 insolvency law is replaced with a more modern process of

schedules, examination, and broader discharge from

all debts

The 1744 law is amended on concerns of collusion with friendly creditors to only allow a discharge for

those creditors that received a distribution

The discharge provisions are amended to require a minimum distribution and an agreement by creditors

1740 1750 1760

South Carolina Debt Relief Law

The state's most enduring insolvency law is passed.

Discharge is limited to suing creditors and creditors that agree to accept a dividend

The 1722 insolvency law is replaced with a more modern process of

schedules, examination, and broader discharge from

all debts

The 1744 law is amended on concerns of collusion with friendly creditors to only allow a discharge for

those creditors that received a distribution

The discharge provisions are amended to require a minimum distribution and an agreement by creditors

1740 1750 1760

“The people of Carolina had been but a short time in the possession of peace and independence when they were brought under a new species of dependence. So universally were they in debt beyond their ability to pay, that ridged enforcement of the laws would have deprived them of their possession and their personal liberty…”

South Carolina Debt Relief Law

South Carolina takes its first step in abolishing

imprisonment for debt by adopting the Prison Bounds

Act

Following war and a riot by debtors in Camden, South Carolina adopts a series of laws considered prejudicial

to foreign creditors

A traveling minister observes the death of

debtors in a Charleston prison

South Carolina suspends suits for debt due to war

Debtors in Winton (Barnwell) County riot and burn down the courthouse. The same

day South Carolina Congressman William Smith reports that his committee

was unable to draft a bankruptcy bill as the matter

was more perplexing than first believed.

1765 1775 1785 1795

“Congress shall have power … to establish uniform laws on the subject of Bankruptcies throughout the United States.”

“The power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce, and will prevent so many frauds where the parties or their property may lie or be removed into different States, that the expediency of it seems not likely to be drawn into question.” Federalist No. 42

1800 Act

~ Involuntary

~Required debtor to commit a certain “act of bankruptcy”

~Limited to merchants and traders owing at least $1,000

~Three meetings of creditors

~Creditors liquidated the assets

~Places of holding court were not always convenient for the debtor or creditors

~Discharge conditioned on the agreement of the creditors

Federal Debt Relief Law

The Supreme Court decides the Crowninshield case

merging the laws of insolvency and bankruptcy

The Panic of 1819 causes Congress to again consider a federal bankruptcy law

Following the Panic of 1825, South Carolina Senator Robert Hayne reports a bankruptcy bill to the

Senate

Residents of Charleston urge Congress to pass a

bankruptcy law

The Supreme Court decides the Ogden case highlighting

the limitations of state insolvency law

1815 1825 1835

“There is… no bankruptcy law in this country but there are failures and insolvencies in abundance…. Insolvency… is unquestionably more common here than it is amoung an equal population in any part of England… It is however very seldom indeed that failures have occurred amoungst the long established and respectable merchants and traders of Charleston.” William Ogilby (1833)

“I hold it clear, if by discharging the debt be meant releasing the obligation of a contract, either in whole or part, that neither this Government nor that of any of the States possesses such a power. The obligation of a contract belongs not to the civil or political code but the moral. It is imposed by an authority higher than human and can be discharged by no power under heaven, without the assent of him to whom the obligation is due.”

1841 Act

~Voluntary petitions

~All classes could file

~Limited reasons to deny a discharge

~Involuntary petitions limited to merchants and traders committing acts of bankruptcy

~Distance between the debtors and court still made filing inconvenient

1867 Act

~ Voluntary petitions for all classes of citizens owning at least $300

~Blend of federal and state exemption laws

~ Compositions allowed in 1874

~Court required to be open at all times and allowed to hold session at any place within the judicial district

~Varying discharge amendments eventually requiring creditor consent for debts contracted after 1869

Federal Debt Relief Law

The Anti-Bankruptcy Law Association begins to

introduce a number of bills in the House to repeal the

Bankruptcy Act

The Bankruptcy Act is amended to exclude

railroad, insurance and banking corporations

The Bankruptcy Act is amended to except from

discharge those debts owed for the maintance or

support of a wife or child

The Supreme Court decides the Moyses case rejecting the position that the law

was unconstitutional because it applied to non-merchants and not uniform because it allowed state

exemptions

The Bankruptcy Act is signed into law

A series of economic panics in 1890, 1893, and 1896 would result in Congress considering a bankruptcy

law

1885 1895 1905 1915

Bankruptcy and Insolvency1695-1878

L. Jefferson Davis, IV

Introduction to Bankruptcy Practice in

South CarolinaHon. John E. Waites

U.S. Bankruptcy JudgeDistrict of South Carolina

The U.S. Bankruptcy Court for the

District of South Carolina

• Division of the U.S. District Court– Order of Reference

• Separate courthouse, clerk’s office & records– CM/ECF

• Appeals to District Court – report & recommendations

• Uniform Federal Law – Title 11 of the U.S. Code

• Code balances interests of debtor and creditors & types of creditors– Provides for automatic stay – Identifies property of the estate and

procedures for paying prepetition claims

• Collective Process – consolidates all claims in one court local to the debtor

Basic Concepts

• Injunction against further collection efforts

– Provides breathing spell

• Actions in violation of stay are void

• Willful violation of stay is actionable

Automatic Stay11 U.S.C. § 362

• Schedules & Statements

• Meeting of Creditors

• 2004 Examination

Disclosure

• Trustee is a fiduciary

• Appointed by the United States Trustee

Role of the Trustee

• A claim is any right to payment from the debtor

• Creditors file proofs of claim in a case

• Administrative collection process

Claims

• Provides the honest and cooperating

debtor a “fresh start”

• Legal extinguishment of prepetition debts

Discharge