The state or condition of a bankrupt. Insolvency; a process governed by federal law to help when people or entities cannot or will not pay their debts. The condition of being unable to pay one's debts as they become due.
Bankrupt laws are an encroachment upon the common law. The first in England was the stat.34 and 35 H.VIII., c.4, although the word bankrupt appears only in the title, not in the body of the act. The stat.13 Eliz. c.7, is the first that defines the term bankrupt, and discriminates bankruptcy from mere insolvency.
The U.S. Constitution, Art. I, sec. 8, authorizes congress 'to establish an uniform rule of naturalization, and uniform laws on the subject of bankruptcies throughout the United States.' With the exception of a short interval during which bankrupt laws existed in this country, this power lay dormant till the passage of the act of 1841, since repealed.
Any one of the states may pass a bankrupt law, but no state bankrupt or insolvent law can be permitted to impair the obligation of contracts; nor can the several states pass laws conflicting with an act of congress on this subject and the bankrupt laws of a state cannot affect the rights of citizens of another state.
A person who has done, or suffered some act to be done, which is by law declared an act of bankruptcy; in such case he may be declared a bankrupt.
It is proper to notice that there is much difference between a bankrupt and an insolvent. A man may be a bankrupt, and yet be perfectly solvent; that is, eventually able to pay all his debts or, he may be insolvent, and, in consequence of not having done, or suffered, an act of bankruptcy. He may not be a bankrupt. Again, the bankrupt laws are intended mainly to secure creditors from waste, extravagance, and mismanagement, by seizing the property out of the hands of the debtors, and placing it in the custody of the law; whereas the insolvent laws only relieve a man from imprisonment for debt after he has assigned his property for the benefit of his creditors. Both under bankrupt and insolvent laws the debtor is required to surrender his property, for the benefit of his creditors. Bankrupt laws discharge the person from imprisonment, and his property, acquired after his discharge, from all liabilities for his debts insolvent laws simply discharge the debtor from imprisonment, or liability to be imprisoned, but his after-acquired property may be taken in satisfaction of his former debts.