Bankruptcy is specifically mentioned in the United States Constitution. The United States Constitution states: “[The Congress shall have Power] to establish . . . uniform laws on the subject of Bankruptcies throughout the United States.” This means bankruptcy is constitutional.
The Framers wanted to ensure that there would be a uniform system of bankruptcy so that one state would not put someone in debtor’s prison for a debt that was discharged in another state. James Madison, in Federalist Paper No. 42, wrote about how important uniform bankruptcy laws would be for the regulation of commerce in the United States. In this article, the power to pass and regulate bankruptcy was mentioned in the same paragraph as the power to issue currency and regulate the use of foreign currency.
The United States Congress passed the first bankruptcy law in 1800. However, that law only lasted until 1803. The next bankruptcy law was not passed until 1841, which also had a short life, lasting only until 1843. After the civil war, Congress passed a bankruptcy act with a little more longevity, lasting from 1867 to 1878. Congress finally passed a permanent bankruptcy law in 1898, which remained in place for eighty years. In 1978, the current structure of bankruptcy laws were enacted. In 1984, 1986, 1994, and 2005, the bankruptcy act was revised, but the basic structure remained intact. The 2005 act added the means test and limits on restructuring vehicle loans.