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Insolvency Series: Attitudes to Bankruptcy

11 July, 2017Keith Pond

UK society’s attitude to bankruptcy and debt has undergone huge changes over the past 300 years. Starting at the low point from 1705 draconian capital penalties awaited those who were unable to pay their debts and even those who simply frustrated the efforts of the Commissioners in Bankruptcy (Tribe, 2009).

insolvency pic

Samuel Wale. 'John Perrott hanged at Smithfield. c.1761-1786 (a pen and ink study for Tyburn Chronicle, Vol IV, p162). British Museum, Binyon 15. © Trustees of the British Museum.

It is no coincidence that the power in the land was shifting. At this time power was siding towards traders and entrepreneurs as part of the Industrial Revolution.  Fast forward to the mid-19th Century and Dickensian Debtors’ Gaols were all the rage.  Hanged bodies NEVER repaid debts but imprison a debtor and the family would rally round and buy them out.

Modern attitudes to Bankruptcy formed with the Bankruptcy Act of 1882, a work by the Birmingham trader and politician Joseph Chamberlain.  Now debtors would pay as much as they could to their creditors and would eventually have all debts discharged.  Subsequent amendments to this basic principle bring us up to the modern day when discharge periods can be as short as 1 year.

Kenneth Cork recognised this in his Insolvency Law and Practice Review of 1982, following which the rehabilitation of debtors was made prominent.  Debt Relief Orders (for small cases) and Individual Voluntary Arrangements now outstrip the numbers of full bankruptcies for individuals.

In an indebted society what are the differences between the “just about managing” debtor and the insolvent one?  Poor decisions, bad luck, illness, economic downturn, disability, poor advice, easy credit...all are pre-cursors to bankruptcy.  The treatment we now receive in bankruptcy, however, recognises that so many of us could be the next victim of incautious borrowing / lending – so, would we want to be hanged for that or rehabilitated?

 

References: 

Picture of Perrot hanging available at: https://www.londonlives.org/static/Punishment.jsp

Insolvency Law and Practice – Report of the Review Committee, 1982, Cmnd 8558. HMSO, London.

Tribe, J P, Bankruptcy and Capital Punishment in the 18th and 19th Centuries (January 16, 2009). Available at http://dx.doi.org/10.2139/ssrn.1329067


Dr Keith Pond is the Associate Dean (Teaching) in Loughborough University's School of Business and Economics, and a senior lecturer at The London Institute of Banking & Finance.

To read the other instalments in the Insolvency Series, please click here.