New York Times, “A New Bankrupt Law,” November 2, 1857

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“A New Bankrupt Law,” New York Times, November 2, 1857, p. 4: 3-4.
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New York Times
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A New Bankrupt Law
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Wes McCoy, Dickinson College
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The following text is presented here in complete form, as true to the original written document as possible. Spelling and other typographical errors have been preserved as in the original.

A New Bankrupt Law.

There is an idea afloat that it will be necessary to pass another bankrupt law, some time in the course of the next session of Congress, to extricate the merchants and traders from the load of difficulties brought on them by the recent panic. In other words, there are great numbers of people looking forward to have their debts paid by statute enactment. A greater number still, however, look upon all legislation on this subject with suspicion, as being nothing more nor less than the creation of facilities to enable knaves to get rid of their lawful obligations.

There can be no doubt that most of the existing prejudice against a bankruptcy law is justified by the experience of the country. The act of 1841 is still fresh in people’s memory, and next to its being a place of special legislation, none of its incidents is remembered more vividly than its wholesale discharge of all the debtors who chose to avail themselves of it, and the ludicrously small dividends which came into the hands of creditors, under its operation. If any attempt be made to repeat the experiment now, we trust care will be taken to legislate rather for the future than the past. What we want is a law which shall hereafter promote the interests of honest debtors and bona fide creditors, and promote fair dealing in the commercial world. If this can be done by means of the same measure which provides relief for the victims of the present panic, well and good; but we protest against any attempt to hurry a crude, ill-considered law through Congress, with the deliberate intention of simply making a clean sweep of all existing contracts, and this done, of repealing it. To hold out to the mass of wild speculators the sure hope that as soon as the crisis comes upon them, the Federal Legislature will hasten to relieve them by a sort of indemnity act from consequences of their folly or wickedness, is to put a high premium upon recklessness and dishonesty. It would be hard to devise a better mode of damaging national credit, and lowering the standard of commercial morality, than holding out the prospect of absolution by statute once in twenty years; and yet this is exactly what the Federal Legislature has been doing by the two bankruptcy acts of 1800 and 1841. The history of American commerce, as well as the terrible crisis through which we are now passing, prove, it seems to us, beyond all question, the necessity of a good bankruptcy law; and yet we have no hesitation in saying that a repetition of the legislation of those two years will create such a prejudice in the public mind as to render the passage of any bankruptcy law impossible.

The law of 1841 was copied in the main from the English acts on the same subject, but with such modifications as to put out of sight altogether the main object of the British Bankruptcy Code- an object which has been kept steadily in the view through nearly two centuries of somewhat confused and patchwork legislation- the fair and equitable divisions of the assets of the insolvent amongst his bona fide creditors. The British law also makes one most important distinction between two classes of debtors, of which no notice whatever was taken in our act of 1841- an omission which inspired Colonel BENTON with some of his fiercest philippics against it. We allude to the distribution between bankrupt traders and insolvent debtors.

A general release of all debtors from their obligations to their creditors is viewed in the abstract, as a very bold interference with the rights of property and the sanctity of contracts. It can only be justified by considerations of public good of the very highest kind, and should only be exercised with the greatest care and caution. Inevitable the unforeseen misfortune, or innocent incapacity, furnished a fair case for its operation, but no such claim can be put forward on behalf of willful extravagance. In other words, the man whose income is dependent on the good faith of others, on contingencies over which he has no control, on the chances of the money market, and the calculations or miscalculations of his debtors, stands in a totally different position before the law, from the man who knows beforehand what his means of meeting his liabilities will be a year or half a year hence. Those who lend to a trader, in so doing agree to partake his risks. They know that their chances of repayment depend upon the fulfillment of his calculations, and trust to their turning out correct. This is commercial credit, properly so called. But those who lend to a man with a fixed income, from whatever source it may come, and which is no way dependent for its continuance upon any chances save those ordinary ones to which all human affairs are liable, lend in the belief that the borrower is taking care to preserve a due proportion between his liabilities and his receipts,- and that when he says that he will pay, he knows he will be able to do so. The trader’s assets, too, are generally tangible and “comeatable,” and when he has surrendered them he ahs surrendered his all. Those of the non-trader are frequently totally out of anybody’s reach but his own. A doctor or lawyer may clearly earn a capital income, and live in great luxury without ever possessing a single article on which his creditors can lay handle.

Between these two classes the English acts of parliament, as well as the courts, have been careful to draw a line of distinction. The courts have, undoubtedly, of late years made it exceedingly fine and subtle, and the tendency of their ruling has been to include in the category of “traders,” an increasing number of insolvents, so that the question of “what is a trader?’ is becoming more vexed. But nevertheless the principle that such a distinction exists, and is founded in natural justice, has been invariably recognized and enforced. Our act of 1841 totally ignored this difference, and proposed to discharge all debtors en masse, no matter how or under what pretence or with what expectations their debts were contracted, provided they were not created by defalcations in s fiduciary capacity. The facilities for fraud thus held out are to obvious to require comment.

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