Patrick Cordero operates one of the leading bankruptcy and mortgage modification law practices in South Florida. Cordero’s practice serves as the second-largest bankruptcy filer in the nation.

The framers of the U.S. Constitution wisely reserved to Congress the power to make rules and laws pertaining to bankruptcy. Throughout the 19th century, bankruptcy laws in the United States were considered only after financial crises. Before 1898, only three were enacted and each was repealed shortly afterward because of the costs involved and the high degree of corruption. The first such law, passed by Congress in 1801, was extremely limited in scope and applied only to traders and not individuals or corporations. In addition, the 1801 law provided only for involuntary bankruptcy imposed by a judge based on a debtor’s inability to meet a creditor’s demands in a lawsuit. Subsequent bankruptcy legislation expanded the population of entities that could be declared bankrupt; made provisions for voluntary bankruptcy; and introduced the concept of compositions, plans devised by debtors for the distribution of its assets among creditors.

Without bankruptcy laws, debt collection was primarily governed by contract law. Creditors would sue delinquent debtors and, following judgment, seize their belongings to meet the amount due. Some states modernized their laws, declaring certain assets immune from such seizure, such as residences and tools of the debtor’s trade. They reasoned that without a place to live or tools to earn a living, a debtor would be rendered less able to pay a judgment. Individual debtors, as well as their families and servants, could be jailed if they were unable to meet their obligations. However, this practice fell into disfavor in the 1830s.

Despite the need for a uniform national bankruptcy law, the Bankruptcy Acts of 1801 and 1841 were enacted after a period of national financial difficulty and intended to last only five years each. Both were repealed after only two years. The Bankruptcy Act of 1867 lasted longer, but was repealed in 1878. As the United States entered the Industrial Revolution, it had no uniform law governing bankruptcies. Instead, creditors dealt with delinquent debtors by means of an often punitive legal process that may well have exacerbated their financial hardships.