We received our copies of Bankrupt in America: A History of Debtors, Their Creditors, and the Law in the Twentieth Century
also available at Amazon
I previously posted an overview of the book but here is a description of each of the chapters.
Chapter 1 Introduction
The introduction acquaints the reader with what is already
known about bankruptcy in the twentieth century, describes the methods used in
the book, and previews the central argument. The chapter begins with a broad
overview of the laws and procedures governing the collection of unpaid debt at
the state and describes federal bankruptcy. The text highlights the interplay
between state and federal law. It introduces the interdisciplinary literature on
bankruptcy, emphasizing the need for an analytic framework that integrates the
story of changes in the bankruptcy law with the story of changes in the
bankruptcy rate. It places the framework and methods within the contexts of New
Institutional and cliometric traditions.
Chapter 2 The Intended and Unintended Consequences of the 1898 Bankruptcy Act
Chapter 2 examines the origins and consequences of the 1898 Bankruptcy
Act. The authors of the law were business owners who wanted an efficient
procedure to deal with the failure of other businesses. They gave little
thought to personal bankruptcy, and the law that they designed for businesses erected
no substantial obstacle to the discharge of consumer debt. As access to
consumer credit expanded, personal bankruptcy grew both relative to business
bankruptcy and in absolute terms. However, personal bankruptcy did not grow
evenly across the U.S. Households sought the protection of bankruptcy law mainly
in states where garnishment of wages was easy. The growth in personal
bankruptcy led to a shift in beliefs about the causes of bankruptcy and the
purpose of bankruptcy law. Initially, creditors, debtors, legislators, judges
and other legal professionals agreed that the purpose was to satisfy the claims
of creditors efficiently. By the end of the 1920s, many interested parties
stressed the importance of providing relief to debtors, who were portrayed as
victims of unscrupulous creditors such as loan sharks. The increase in
bankruptcy also led to changes in organized interest groups. Legal
professionals began to work alongside creditors to try to shape the law.
Chapter 3 An Emphasis on Workout rather than Liquidation
As bankruptcy rates increased in the 1920s, creditors and
legal professionals sought to increase in the efficiency of administration.
However, as the nation slipped into the Great Depression, reformers found that
neither the country nor Congress was interested in their ideas for improving
efficiency. Business bankruptcy increased rapidly at the start of the Depression,
and President Hoover pushed Congress to add ways for businesses and farmers to develop
repayment plans and avoid liquidation. As the Depression wore on, however, business
bankruptcy became less of a problem because new business formation was low. Personal
bankruptcy cases continued to increase in states with pro-creditor collection
law. Representatives from those states, especially Walter Chandler from
Tennessee, argued that workers wanted to pay their creditors if they, too,
could have a procedure that granted them more time. Congressional debates
around the proposals that eventually became Chapter XIII (now known as Chapter
13) pitted those who viewed the procedure as a means to
enable people to pay their debts and avoid the stigma of bankruptcy against
those who balked at the idea of making the courts a collection agency for
creditors. This theme was reprised several times over the next 70 years.
Chapter 4 Personal Bankruptcy after World War II
The bankruptcy rate was very low during World War II, but it
increased quickly after the war ended. As growth in consumer credit returned to
its pre-Depression trend, so did growth in the personal bankruptcy rate. Bankruptcy
grew everywhere, but it rocketed past its previous peak in states with
pro-creditor garnishment. Although personal bankruptcy increased, few cases
were filed under Chapter XIII. Demand by debtors for Chapter XIII probably was
not as great as its Depression-era advocates imagined it to be. People rarely
used the procedure for spreading payments over time except in places where
bankruptcy referees pushed it.
Chapter 5 The Renegotiation of the Relationship between Consumers and Their Creditors
Pro-creditor garnishment law was a key driver of the
bankruptcy rate for the first two-thirds of the twentieth century, but it did
not survive the consumer rights movement of the 1960s. By 1970, Congress and
the Supreme Court limited the ability of states to maintain and enforce
pro-creditor collection laws. Chapter 5 shows that the federal restrictions on
garnishment law, especially the Consumer Credit Protection Act, reduced the
state-to-state variation in the bankruptcy rate and caused the national
bankruptcy rate to level off. Although the growth of bankruptcy in the 1950s
and 1960s led to calls for reform of federal bankruptcy law, the effort moved
slowly. By the time recommendations for bankruptcy reform were made to
Congress, bankruptcy rates were no longer regarded as a problem. Almost all of
the changes to personal bankruptcy in the 1978 Bankruptcy Reform Act encouraged
debtors to file.
Chapter 6 The Triumph of the Consumer Creditor
Bankruptcy rates rose after 1978. The debtor-friendliness of
the 1978 changes set the stage for a new bankruptcy crisis, but the increasing
importance of banks that issue credit cards was the most important force. The
Supreme Court’s 1978 decision in Marquette
National Bank of Minneapolis v. First Omaha Services Corp. led directly to
the growth in the market for credit cards. Banks could now profit from offering
cards to high-risk consumers, and this put more people on the path to
bankruptcy. Card issuers used some of their profits to lobby for changes to
bankruptcy law. Studies by creditor-funded organizations, such as the Credit
Research Center, supported a narrative in which lax bankruptcy law and lack of
stigma led households to file for bankruptcy even when they could pay, imposing
a so-called bankruptcy tax on honest debtors. In 2005, Congress passed a
bankruptcy reform bill supported by banks and credit card companies, over the
objections of many legal professional, scholars, and even some creditors. Today
personal bankrupts must use Chapter 13 repayment plans unless they can show
that they do not have sufficient income to repay. Credit card issuers won the
argument that retailers began in the 1930s.
Chapter 7 Conclusion and Epilogue
The conclusion reviews four themes in the evolution of
bankruptcy and bankruptcy law. First, long run growth in personal bankruptcy
comes from growth in the supply of credit at the extensive margin. Businesses regularly
invented new ways to grow through consumer lending, and the relaxation of usury
restrictions facilitated riskier loans. Second, state laws governing the
collection of debt are key to interpreting geographic and temporal patterns in
bankruptcy. The interaction of state collection law and bankruptcy law caused
bankruptcy rates to be higher in states with pro-creditor collections.
Pro-creditor collection law also magnified the effect of the growth in the
credit supply and the effect of recessions on the bankruptcy rate in those
states. Third, people matter. A small number of individuals had outsized
influence on the history of bankruptcy. Fourth, stories matter. Beliefs about
bankruptcy are typically expressed in stories about what brings people to bankruptcy.
In some stories, debtors are driven to bankruptcy by unscrupulous creditors or
economic crises. In other stories, unscrupulous debtors take advantage of
overly generous laws, imposing the cost of their default on others. The
direction bankruptcy reform took depended upon which story carried the day.
