In many Western societies, modern bankruptcy laws have undergone a shift away from a focus on punishment and toward a focus on bankruptcy as a remedy for individuals and corporations in financial trouble—and, perhaps unexpectedly, for their creditors. This shift has coincided with an ever-increasing reliance on declarations of bankruptcy by individuals the needs of an interdependent society, serve the varied interests of the greatest number of citizens.
The harsh punishment for insolvency in centuries past included imprisonment of individuals and dissolution of enterprises, and reflected societies' beliefs that the accumulation of excessive debt resulted either from debtors' unwillingness to meet, obligations or from their negligence. Insolvent debtors were thought to be breaking sacrosanct social contracts; placing debtors in prison example, an auto manufacturer, its dissolution would cause significant unemployment and the disruption of much-needed services.
Modern bankruptcy law has attempted to address the shortcomings of the punitive approach. Two beliefs underlie this shift: that the public good ought to be paramount in considering the financial insolvency of individuals and corporations; and that the public good is better served by allowing debt-heavy corporations to continue to operate, and individuals to a degree of economic health and providing creditors with the best hope of collecting.
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