Content area
Full Text
We all know Abraham Lincoln (1809-65): 16th U.S. President, the man on the penny and the $5 bill, on Mount Rushmore or seated in the Lincoln Memorial in Washington, D.C. However, what you may not know is that Lincoln not only led the country through the American Civil War and abolished slavery, but also practiced debtor/creditor and bankruptcy law.
Before Lincoln was a lawyer, at 24 years old he went into business to purchase a local general store, but the business failed. The sheriff seized Lincoln's horse, saddle and surveying equipment, but there was a substantial deficiency debt. It took Lincoln 10 years to pay that debt. As a result, Lincoln had a first-hand education by experience in debtor/creditor law, and his diligence in payment of the debt helped earn him the enviable nickname "Honest Abe." Both during his business failure and when he became a lawyer in 1836 at age 27, there was no federal bankruptcy law.
The Bankruptcy Act of 1841
The Constitution, effective in 1789, provided for Congress to create laws relating to bankruptcy in Article I, section 8, which gave Congress the power to "establish ... uniform Laws on the subject of Bankruptcies throughout the United States." Congress did not pass a law relating to bankruptcy until the Bankruptcy Act of 180, which was creditor-oriented and only provided for involuntary bankruptcies of merchant debtors. Debtors soon learned that they could abuse the system by having a friendly creditor file the bankruptcy, and the law was repealed in 1803. The states continued to have state quasi-bankruptcy laws in the absence of a federal law, but most such laws were pro-creditor and many provided for the imprisonment of debtors.1
It is interesting to note the proximity of the timeline between the Constitution and founding fathers and Abraham Lincoln's time. When Lincoln was bom, the Constitution was only 20 years old. When Lincoln became a lawyer in 1836, the Constitution was only 47 years old.
When Lincoln first became a lawyer, there was a financial crisis, as many people could not pay their debts because there was not enough currency in circulation (promissory notes were commonly substituted for cash) and assets were tied up in real estate. In 1841, when Lincoln was 32...