April, 2009

The system of debt in America was modeled after the British Legal System. The first bankruptcy law was written in 1543, which allowed those in debt to be imprisoned. And if you tried to help someone who was in debt, you were punished and/or imprisoned. A person was considered dishonest, a fraud and a deadbeat if they owed debt. And as such, you could be hung. Debtors prisons flourished until approximately 1850.

The Pennsylvania Bankruptcy Act of 1785 allowed convicted bankrupts to be flogged (beaten) and have an ear nailed to a post. In order to make the punishment permanent, the ear was then cut off. In early colonial New York, bankrupts were branded on the thumb with a "T" for "thief." My goodness, talk about shame!

The concept of debt as a moral issue has played a central part in the formation of laws, public opinion, and personal conduct throughout history, here in America. It still does. In the sixteenth century, judges (magistrates), those who enforced debt laws believed that if the debtor could not provide food for himself he should be allowed to starve to death. Today, as a result of the bankruptcy bill of 2005, there has been a strong argument that the creditor’s rights are of paramount importance. Question. What if our country operated on the same premises (of the laws of) in 1543 or even in 1785? Another question. Would our country be in the financial state that it finds itself in?

In the nineteenth century as more and more people met with financial disasters that had little to do with their character or their money management skills, public perception on debt changed. At this time in history, laws were written that stated that creditor and the debtor had to profit from the deal. So, if the debt was not paid, the responsibility was shared by the debtor and the creditor. Wall Street must have forgotten about this concept, either that or they failed finances 101. The new concept paved the way for standardization of debt collection and this led to the end of debtors prison.

In 1776, yes in 1776 suspicion about the motives of creditors and how they were doing business caught the attention of the government. Thomas Jefferson believed that the British tobacco companies conspired to enslave Virginia tobacco farmers into generations of *servitude by getting them to purchase their supplies on credit and then lowering the price. *Per Merriam Webster dictionary, the following is the definition of servitude: 1. a condition in which one lacks liberty especially to determine one's course of action or way of life 2 : a right by which something (as a piece of land) owned by one person is subject to a specified use or enjoyment by another. Basically, a creditor could take whatever you owned and use it for their enjoyment.

No where in our research did we find anything saying a company (i.e bank, insurance company, car maker) could spend unwisely, frivolously, purchase private jets (that could hold over 100 people, but only be utilized by a select few), layoff average Americans, purchase more new jets because they (jets) were previously ordered and then somehow get the government to bail them out. Question. Is it a good idea to bring debtors prison back? In 1785 citizens were truly, truly embarrassed to be in debt. In 2008 and 2009 is there no shame? Where is the integrity of these corporations?

The laws of the seventeenth century gave creditors the right to have absolute power over their debtor’s life. Creditors could, at their discretion have debtors arrested and their property seized. During our research we found a article about how a debtor’s will included instructions to sell his body’s remains to surgeons. He wanted the proceeds of the sale along with the interest earned to pay his debts. There was one problem however, his creditors owned and controlled his body. We think his actions were admirable, he was concerned about getting his debt paid after his death.

In 1790 criminal codes were changed and updated, which put an end to whipping, ear-snipping and branding (as in cow branding). This was the time when prison sentences were instituted. Debtors were serving indefinite prison terms. This however, created a dilemma. If you robbed a bank of $1,000.00 and were caught, you would be sent to prison where you would be fed, clothed and kept warm. But if you borrowed $1,000.00 from a bank and could not repay the loan, you would be imprisoned for an indefinite amount of time. And if you could not pay for your own food, clothing or heat, you would be left to die. Quite the Catch-22. Question. If those were the choices in today’s era, do you think Wall Street, Insurance Companies and the Big Three Car Makers would be in the dilemmas that they find themselves in? Integrity would return in such a big way. Actually it should never have been lost.

So, what is a person to do? You do the doggone best that you can. You work hard, spend a little and save a lot. Chances are this country will have more tough times and there is an excellent chance that we all will make it through. While getting into debt may or may not have been due to your own actions, getting out of debt is certainly your responsibility. Everyone should take heed to that statement, including corporate America. Options are out there. There are money management tools to use and there is help available. Ultimately how you get out of debt is up to you. Choose a path that fits your finances and suits your personality. Then get busy and make it happen. 

Keep in mind there is no guarantee, your best bet is to always have a plan.  You will never get to where you want to go if you are clueless about where you are headed.  And no, you cannot cancel the trip just because you have no idea where you are going...keep driving (so to speak), eventually you will see signs on the road that will let you know if you are on the right track.  You will also see signs that will let you know if you have taken a wrong turn.  Just get back on track, do a U-turn if necessary.  The important thins to remember is to get back on trackthe most important financial lesson for all of us to learn is that, while money is important (we all need to pay our bills, purchase food and pay the rent or mortgage, etc) it is not everthing.  If you are in debt, make a plan to get out of debt and stay out of debt.  Let go of past mistakes and start anew.