Bankruptcy in Russia, 1740-1800, and the First Non-Merchant Discharge!

Bankruptcy in Russia, 1740-1800, and the First Non-Merchant Discharge!

posted by Jason Kilborn

I discovered something surprising in my summer research on the history of bankruptcy in Russia: It seems that the first modern, court-ordered bankruptcy discharge available to non-merchant debtors appeared not in the US or England, but Russia, in 1800. I suspect the relief offered was largely theoretical, but I found it shocking and intriguing that a discharge appeared in Imperial Russian law that early on. The law will finally come full circle in October 2015, when the new Russian law on personal insolvency becomes effective. It's been a long time coming!

As in England, bankruptcy law in Russia started from a much more hostile and punitive position toward debtors. In the Charter on Bankrupts of 15 December 1740 (law no. 8300, available online here), debtors who fell into distress through no fault of their own were to be released from debtor's prison and not fined (s. 19), while debtors whose fault contributed to their downfall (e.g., by continuing to trade while insolvent) were to be fined and executed by hanging (ss. 31-32). Luckily for debtors, this law was apparently ignored in practice and was replaced in 1753 with a new law (without a death penalty) by Peter the Great's daughter, Elizabeth. 

A more radical departure from past practice appeared in the landmark Charter on Bankrupts of 19 December 1800 (law no. 19,692, available online here). This law for the first time drew a distinction between merchant and non-merchant debtors, making bankruptcy relief available to the latter in a distinct Part Two.

Like in the US law of 1800, relief was available to merchants, but only pursuant to majority creditor vote (and only for no-fault debtors) (s. 132). Unlike US and English law, the 1800 Russian law allowed non-merchant debtors to self-petition a court for relief from debts not covered by the liquidation of their assets (s. 98). If the debtor could demonstrate that his financial distress was caused by unforeseeable and unavoidable fire, flood, theft, or other no-fault circumstances, the debtor was to be "subjected to no further seizure or punishment." (s. 99). Of course, I doubt many debtors were able to make this showing, and those who couldn't were subject to up to five years in debtor's prison (this regime persisted until the 1917 Revolution, though the court-ordered discharge for faultless non-merchants seems to have been abrogated around 1832).

The substantial extent of borrowing and lending in mid-19th century Russia, and the particulars of both the bankruptcy process (for merchants) and the much more humane conditions of Russian debtor's prison, are described (in English!) in a magnificent Columbia Univ. dissertation by Sergei Antonov, entitled Law and the Culture of Debt in Moscow on the Eve of the Great Reforms, 1850-1870. For enthusiasts of both Russian history generally and economic/bankruptcy history in particular, this work is a rare and valuable find--and quite an engaging read.

Boyar and peasant image courtesy of Shutterstock.