Page:The New International Encyclopædia 1st ed. v. 02.djvu/550

BANKRUPTCY. but also on the bankrupt or debtor himself. On the creditors, by compelling the bankrupt to give up all his effects to their use, without any fraudulent concealment; on the debtor, by freeing him from imprisonment and discharging him from his debts, if he had been honest."

These laws, however, applied only to traders, because it was thought that they were, "generally speaking, the only persons liable to accidental losses," and that it was "an unjustifiable practice for any person but a trader to incumber himself with debts of any considerable value." Those who were not traders could get relief from imprisonment for debt only to the extent provided by an entirely distinct set of statutes, those relating to insolvency (q.v). Although Blackstone describes the bankruptcy laws of his age in the most optimistic vein, deeming them, as he did almost every other branch of English law, the perfection of human reason, they have been modified repeatedly during the last hundred years. Thirty-eight bankruptcy acts have been passed in England, beginning with that already mentioned under Henry VIII., and, for the present, closing with the act of 1883, as amended in 1890. These statutes have been a series of experiments, and although the latest had for its motto, "The estate for the creditor, not for the debtor, nor for the trustee," it cannot be considered a finality, for it has not accomplished its avowed purpose of satisfying the creditor class. This is shown by the fact that nearly one-half of the business insolvencies in England are liquidated under deeds of settlement or voluntary compositions with creditors outside of the bankruptcy court.

Under the present bankruptcy acts in England and in the United States, proceedings in bankruptcy may be instituted by the debtor or by creditors. The former is called a voluntary, the latter an involuntary, proceeding. Each is begun by filing a petition. The debtor's petition must state that he is unable to pay his debts, and is willing to surrender all of his property to the use of his creditors. Whether a person is liable to be adjudged a bankrupt upon the petition of creditors does not depend upon his ability or inability to pay his debts, but upon his having committed an act of bankruptcy. Such at least is the English doctrine; but it is modified to some extent in the United States. The United States Bankruptcy Statute of 1898 enumerates five classes of acts of bankruptcy: First, conveying, transferring, concealing, or removing, or permitting to be concealed or removed, any of his property with the intent to hinder, delay, or defraud any of his creditors; second, transferring, while insolvent, any of his property with intent to prefer a creditor or creditors over others; third, suffering, while insolvent, any creditor to obtain a preference through legal proceedings, and not securing the vacating or discharge of such preference: fourth, making a general assignment for the benefit of creditors; fifth, admitting in writing his inability to pay his debts, and his willingness to be adjudged a bankrupt on that ground.

After the debtor is adjudicated a bankrupt, a trustee is appointed by the creditors (subject to some supervision by the Board of Trade in England, by the bankruptcy court in this country), who becomes vested not only with all the property in possession of the debtor at the time when he was adjudged a bankrupt, but with all that he had transferred in violation of the statute or in fraud of creditors. It is quite important that the trustee's title should relate back of the adjudication. Otherwise a failing debtor could always defeat one of the main purposes of the bankruptcy statute — that of securing a ratable division of all his estate among all his creditors — by turning over his property to one or more favored creditors. By providing for the relation back of the trustee's title, every transfer of his property made or suffered by an insolvent debtor, with intent to prefer a creditor over others, within three months in England, four months in the United States, before the filing of the petition in bankruptcy, is rendered invalid, and the property may be brought back into the estate for division among creditors. Moreover, even when a creditor has obtained security from the debtor, which is not invalidated by the statute, he is not allowed to share in the bankrupt's estate unless he turns over the security to the trustee. It is the duty of the bankrupt to make a full disclosure and surrender of his property, save such as is exempted by statute, as well as to supply a full and honest list of his creditors. Upon establishing their claims, in the prescribed manner, the creditors are entitled to take part in the meetings provided for by statute, as well as to receive dividends. If the bankrupt's business conduct has been honest and legal he is entitled to a discharge from all provable debts, with few exceptions. He may be punished criminally for certain violations of the bankruptcy law; and a discharge from debts will be denied for various reasons. Under the present Federal statute it will be denied if he has committed an offense punishable by imprisonment, as provided therein, or if he has fraudulently destroyed, concealed, or failed to keep books of account, or records, showing his true financial condition. The English act gives to the court a much more extended disciplinary jurisdiction over bankrupts. It provides for a searching investigation into their conduct and affairs prior to, as well as during, the proceedings, and gives to the court a very large discretion in granting, denying, or conditionally withholding a discharge. Even when a discharge is obtained, it does not relieve the bankrupt, as a rule, either in England or here, from debts grounded in fraud or other moral misconduct. In this country no political disability follows an adjudication in bankruptcy. In England, however, an adjudged bankrupt is disqualified from sitting or voting in either house of Parliament, or from holding various other specified offices. This disqualification ceases as soon as the bankrupt is discharged, if the court certifies that he was free from misconduct, and at the end of five years from a discharge in other cases.

Article I., Sec. 8, of the Federal Constitution, gives to Congress power "to establish ... uniform laws on the subject of bankruptcies throughout the United States." This grant of power to Congress does not exclude the States from legislating on this subject; but a Federal bankruptcy statute does suspend, while in force, the operation of a State statute covering the same ground. Congress has exercised this power but sparingly. It passed the first bankruptcy law in 1800. This was copied quite closely from the English statute of that time. As it applied only to traders, it soon became unpopular with