Debt and insolvency were taken very seriously in early America. Personal and business debt in the colonial era was often viewed as a moral failing.
Business insolvency was seen as the result of excessive speculation. Personal insolvency was taken to be a sign of overconsumption or laziness, a sin
related to greed or sloth. In either case, not paying one’s legally contracted debts was considered akin to stealing.
American laws concerning debt and bankruptcy were closely modeled on those of England. The first British bankruptcy law was passed in 1570, during
the reign of Henry VIII. It was motivated by the fact that the debtors’ prisons were filled to capacity. This law, however, did not solve the problem. In 1705,
the Statute of Anne Bankruptcy Act allowed for the execution of persons who had accumulated excessive or fraudulent debt, the latter a result of
misrepresenting one’s assets and liabilities to the lender.
Early American bankruptcy laws were designed for the relief of the creditor rather than as a safety net for the debtor. As such, the penalties were harsh
and unforgiving. A debtor in colonial times could be imprisoned and have his property seized and liquidated, as well as be made to endure the public
punishment of the pillory, where he might have one or both ears nailed to the frame or cut off entirely.
Debtor’s prisons were especially unpleasant places and, in many cases, worse than regular prison. The government fed and clothed felons and criminals
but not debtors; debtors had to feed themselves or get friends or family to support them. In some cases, debtors who had no hope of repayment would
commit crimes that would result in their being moved to regular prison facilities.
Overcrowded and lacking in sanitation facilities, these “gaols” were hotbeds of typhus and other diseases, and many people died while incarcerated. In
addition to the debt owed, the guilty also were expected to pay for their confinement. Because many debtors could not support their families on the
outside, wives and children could sometimes be found living in cells with debtors.
Detention acted as a guarantee that the guilty would appear for the court date and not try to hide assets. There were two ways to get out of debtor’s
prison. The debtor could offer assets equal to the debt owed as security or find someone to post bail and act as guarantor for the debt. Upon ultimately
settling their obligations, debtors were usually allowed to keep a few personal and necessary items for themselves and their families, including bedding
and nonluxury clothing.
In contrast to regular prison, debtors’ prisons were more likely to contain numbers of well-educated people. In the 1790s, the debtors in the New York jail
formed an internal government modeled after that of the fledgling United States, complete with a legal structure, judges, and other officers. Some debtors
also sponsored newspapers composed and published from within, in an attempt to raise public consciousness about the treatment of debtors.
Because there was a strong moral component behind the criminality of debt, there were also predictable regional differences in interpreting what a
condition of debt meant. In the South, debt was not necessarily a sin, but it was definitely considered ungentlemanly. In New England, attitudes toward
debtors contained a strong moral dimension. The more commercial-minded middle colonies were probably the most lax in terms of punishing debtors; as
merchants understood, the essence of business was debt, and harsh penalties might discourage entrepreneurial activity. Not surprisingly, New York State
became one of the first in the nation to eliminate imprisonment for nonfraudulent debt after the Revolution.
The American Revolution and, more importantly, the commercial revolution of the early nineteenth century led to a gradual change in the attitude toward
imprisonment for debt. By the middle of the nineteenth century, most states had outlawed the practice. Although, under the Constitution, bankruptcy law
came under the jurisdiction of the federal government, it was not until 1800 that Congress passed its first bankruptcy statute.
See also: Class; Crime; Prisons and Punishment; Property and Property Rights.
Coleman, Peter. Debtors and Creditors in America: Insolvency, Imprisonment for Debt, and Bankruptcy, 1607–1900. Madison: State Historical Society of Wisconsin,
Mann, Bruce H. Republic of Debtors: Bankruptcy in the Age of American Independence. Cambridge, MA: Harvard University Press, 2002.
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