Early federal bankruptcy laws were typically temporary responses to bad economic conditions, created to punish debtors. Modern laws emphasize rehabilitating distressed debtors.
Pre-Revolutionary U.S. bankruptcy laws, by and large, resembled English laws. which were creditor-oriented, punitive laws created in the late 1500s and 1600s. Imprisonment for debt was permitted in every colony and later every state. In fact, “even as late as 1785, the Pennsylvania Bankruptcy Act allowed flogging for ‘convicted bankrupts’ ” (Levin and Rogers, July/August 2007).
In the early 19th century, attitudes toward debtors began to slowly transform. The public became more sympathetic toward debtors, possibly realizing that harsh punishment often did not provide material compensation to creditors. The law began protecting debtors to encourage debtor-creditor resolutions, nullifying debts of cooperative debtors trying to reduce their outstanding monetary obligations.