History of Bankruptcy – Part 9

Written by: Robert DeMarco
United States Bankruptcy Laws – The Nelson Act
It would not be until 1898 that the next federal bankruptcy statute would pass Congress and become law. The Bankruptcy Act of 1898, Nelson Act, ch. 541, 30 Stat. 544, amended by Chandler Act, ch. 575, 52 Stat. 840 (1938), repealed by Act of Nov. 6, 1978, Pub. L. No. 95-598, 92 Stat. 2549. With the arrival of the Bankruptcy Act of 1898 came permanent federal bankruptcy legislation. As was often the case with bankruptcy legislation, the driving force behind the 1898 Act was creditors. Local creditors, via the “National Convention of Commercial Bodies of the United States,” pushed for a federal bankruptcy law throughout much of the 1880s and 1890s. Many believed federal bankruptcy legislation would put an end to the perceived interstate discrimination amongst creditors under various state insolvency statutes. Southern and western states opposed the notion for fear of governmental intrusion and the negative impact upon farmers. The 1898 Bankruptcy Act, as is the case of most legislation, represents a compromise of both positions.
Initially, the Bankruptcy Act of 1898 authorized the filing of voluntary bankruptcy petitions by any person who owes a debt, except a corporation. In 1910 the Bankruptcy Act was changed and amended, and the language used in the Bankruptcy Act of 1867 was restored thereby allowing corporations to file voluntary petitions for relief. 36 Stat. 839, Sec. 4 (Comp. St. Sec. 9588). The act extended eligibility for voluntary bankruptcy to “[a]ny person except a municipal, railroad, insurance, or banking corporation. . . .”
As a condition precedent to the filing of an involuntary petition under the Bankruptcy Act of 1898, creditors needed to present evidence of an act of bankruptcy, such as: (1) fraudulent conveyance or concealment of property; (2) preferential transfer, (3) suffering or permitting any creditor to obtain a lien through legal proceedings; (4) fraudulent or collusive assignment for the benefit of creditors; or (5) a written admission of inability to pay debts and willingness to be adjudged insolvent. A sixth was added in 1903: appointment of a receiver while insolvent. Under the 1898 Act, creditors retained the authority to elect trustees and the federal District Courts remained the courts of bankruptcy. The commissioners under earlier Acts and the registers under the Bankruptcy Act of 1876 were replaced by “referees” (the predecessor of today’s bankruptcy judges).
DATED:  July 9, 2013
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