In the early days of the United States the most prominent American to become insolvent was ROBERT MORRIS, a highly accomplished statesman and businessman. His story illustrates how difficult life could be for insolvent debtors before it was possible to go bankrupt.
Robert Morris was born in Liverpool, England in 1734 and emigrated to the U.S. when he was 13 years old. As an adult, Morris held a large variety of important public offices. He was, at various times, a member of the Pennsylvania Assembly, a delegate to the Second Continental Congress, and the U.S. Superintendent of Finance. In addition, he was one of Pennsylvania's two original U.S. Senators. During his tenure as the powerful U.S. Superintendent of Finance (1781-1784), Morris was charged with managing the economy of the brand new United States of America. As such, he was considered to be the second most powerful person in the country, after George Washington.
(Historical footnote: Robert Morris was one of only two people to sign the three most important documents in early U.S. history: the Declaration of Independence, the Articles of Confederation, and the United States Constitution. The only other triple-signer was Roger Sherman, a Connecticut lawyer and politician.)
Over time, Morris became extremely wealthy by buying and selling land. So much so that, eventually, he became the largest single landowner in the country. Nevertheless, in spite of all his wealth, experience, acumen and political connections, Morris ended up in serious financial trouble. By the late 1790s, his land speculation businesses were over- leveraged and losing money. In 1796, a real estate bubble burst, which led to a severe recession referred to as the Panic of 1796-1797. The resulting deflation devastated many businesses and, within a short time, Morris found himself owing large sums of money.
Once deflation devalued his holdings, Morris found he didn't have enough cash to pay his creditors. They sued him and, in February 1798, at age 64, Morris was found guilty and sent to debtor's prison in Philadelphia, where he was to remain for three and a half years, until August 1801. After his release, Morris suffered from poor health. He retired permanently to a modest home in Philadelphia where he died, five years later, in 1806.
As you will see in a moment, the U.S. government passed the very first federal bankruptcy law in 1800. In fact, one reason the law was passed at that particular time was to provide a way for Morris to be released from captivity. Once people saw that such a distinguished individual as Robert Morris could be sent to debtor's prison, they realized that there was a clear need to find better ways to deal with insolvency.
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