This section is from the book "Business Finance", by William Henry Lough. Also available from Amazon: Business Finance, A Practical Study of Financial Management in Private Business Concerns.
In the early English law an individual was declared bankrupt for the purpose of enabling his creditors to seize upon and distribute his assets. In case the assets did not prove sufficient to meet his debts, he was held personally subject to the remaining claims of his creditors, and in default of payment was thrown into jail. Within the last 150 years, however, the popular and legal conceptions of bankruptcy have been greatly modified.
The purpose of bankruptcy proceedings is no longer merely to protect creditors, but also to free the individual from a load of debt that has become insupportable and set him on his feet again as a useful member of society. There are abuses, to be sure, of this modern practice. Cases are not unknown, both of individuals and of business enterprises, that have gone through bankruptcy proceedings for the prime purpose of clearing themselves of the legal obligation to pay their debts and afterwards have refused to recognize any moral obligation. But these abuses are, after all, comparatively rare. Individuals who have been able to rebuild their fortunes, after having gone through bankruptcy, have often made it a point of honor to repay in full all the debts from which they had legally been freed.
Bankruptcy proceedings in the United States are governed by the National Bankruptcy Act of 1898, and the courts having jurisdiction are those of the Federal Government.