The history of bankruptcy law in the United States mainly relates to a series of congressional laws regarding the nature of bankruptcy. As the legal regime for bankruptcy developed in the United States, it moved from a system that viewed bankruptcy as a quasi-criminal act to one focused on resolving and paying the debts of individuals and companies suffering heavy losses. In the Thirteen Colonies, laws on the payment and collection of debts were based on English common law. Debtors who were unable to pay their debts had property confiscated and assigned to the creditor, or were imprisoned.
The Bankruptcy Act of 1938, known as the Chandler Act, expanded voluntary access to the bankruptcy system, and voluntary petitions became more attractive to debtors. The Chandler Act granted authority to the Securities and Exchange Commission in the administration of bankruptcy filings. The effects of the 1978 Forklift Bankruptcy Act were unpopular, leading to the Wayne Cryts protest. The first congressional bill on the subject was the Bankruptcy Act of 1800, which was limited to merchants and only provided for involuntary proceedings.
The reform law and the case law that interprets its provisions have a major impact on the mortgage banking industry and on mortgage loan servicers. The economic turmoil of the Civil War caused Congress to pass another bankruptcy law in 1867, and that law was repealed in 1878. Following the ratification of the United States Constitution in 1789, Congress was granted the power, under Article I, Section 8, Clause 4, to legislate to make uniform laws on the subject of Bankruptcy in the United States. The 1994 Reform Act also created a National Bankruptcy Commission to investigate further changes in bankruptcy law and other matters. The first two, those of 1800 and 1841, allowed only minimal debt forgiveness; while the law of 1867 was the first to include corporate protection.