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Introduction to Joseph Smith’s Bankruptcy

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In spring 1842, JS decided to apply for bankruptcy, under a new act created by the United States Congress to help individuals burdened by debts. The financial panics of 1837 and 1839 weakened the economy of the . Banks failed, land values plummeted, and many found themselves unable to pay their debts, all of which led to economic instability and a devastating recession that lasted into the 1840s. As a result, in August 1841 the United States Congress, led by members of the Whig Party, introduced a new bankruptcy act that allowed voluntary bankruptcy. For the first time in American history, any individual could apply for bankruptcy for personal or business debts. This was a dramatic departure from earlier legislation, in which bankruptcy was involuntary and dependent on creditors taking the debtor to court. The act took effect in February 1842 and gained widespread popularity. Tens of thousands of debtors across the nation applied to have their debts forgiven. In alone, more than fifteen hundred applications were filed over the course of the year. However, the act caused chaos in the judicial system as justices, struggling to interpret the legislation, provided inconsistent rulings, and the act was repealed by Congress in March 1843.
JS was one of thousands to use this new act to pursue bankruptcy, but he did so understanding that applying for bankruptcy was not without social and financial repercussions. However, JS saw it as his last resort given his difficult financial situation in 1842. JS was burdened with considerable debts related to business ventures and church construction efforts in , particularly those involving the . The Ohio mercantile firms of . and . had significant unpaid debts, and JS had taken financial responsibility for both firms’ debts. The Saints’ expulsion from also caused significant losses and led to costly land purchases in and in 1839 to provide homes for the refugee Saints. Several weeks after filing his bankruptcy application, JS wrote to his largest creditor, , explaining the pressure of unpaid debts that weighed on him and the “disadvantagious circumstances” he and other church leaders had experienced in trying to purchase land for the Saints in 1839.
Although it is unclear when JS first learned about the new bankruptcy act, he began the process of applying for bankruptcy in April 1842, with the help of attorney of the law firm Ralston, Warren & Wheat, based in , Illinois. This firm began advertising their legal services related to bankruptcy in spring 1842. A notice in the Wasp, a newspaper, stated that one of the firm’s partners would be in Nauvoo beginning on 14 April to assist anyone interested in petitioning for bankruptcy. JS’s journal recounts that he met with Warren on 14 April and then spent the next two days “busily engaged in making out a list of Debtors & invoice of Property to be passed into the hands of the assignee.” Two lists, or schedules, comprised part of the required paperwork to petition for bankruptcy: one list enumerated unpaid or partially paid debts and the creditors to which they were owed, and the other listed assets. The applicant was required to submit a petition, accompanied by these lists, to the federal district court. JS’s petition is no longer extant, but copies of the schedules of debts and assets have survived and are included in the documents featured here.
On 18 April, JS, in company with his brothers and and several other Latter-day Saints, traveled to , Illinois, to file the necessary petitions and depositions for their respective bankruptcy proceedings before the court clerk. Ralston, Warren & Wheat then filed JS’s bankruptcy application with the District Court in by 28 April 1842. Per the requirements of the bankruptcy act, the law firm published a notice announcing JS’s intention to apply for bankruptcy. This ran in two local newspapers, in the 6 May 1842 issue of the Sangamo Journal and in the 7 May 1842 issue of the Wasp.
The bankruptcy act of 1841 required individuals to enumerate their debts and assets and prohibited those petitioning for bankruptcy from transferring property, a financial asset. However, understanding of the act varied and many of those involved, including lawyers and individuals applying for bankruptcy, like JS, were inexperienced and unaware of the new rules and requirements of the act. In the midst of petitioning for bankruptcy, JS deeded personal property to himself as church trustee as well as to family. He may have done this in an effort to protect that property from creditors. Conveying property to dependents or trusts was a common means of shielding property in bankruptcy proceedings. In his schedule of debts, JS’s personal debts were conflated with those he had assumed on behalf of the church as its trustee. While the act allowed for the resolution of personal debts, it did not address fiduciary debts, or those connected with trustees, which may not have been clear to JS or his attorney. Additionally, JS or Warren mistakenly included the large amount of land that JS, , and had arranged to purchase from and his partners in 1839, which JS was still paying for and did not yet own, among his assets listed in the bankruptcy application.
JS also faced uncertainty in itemizing his debts because of the management of his business affairs by agent . While JS had authorized several individuals to act as his financial agents over the years, Granger’s role as an agent in was larger and more significant than most. He took responsibility for repaying outstanding debts in northeastern as well as substantial debts to merchants. His untimely death in August 1841 caused JS significant problems, as it left him unaware of the payments and other arrangements Granger had made on his behalf, and unable to list which debts had been paid or otherwise settled and which remained unpaid.
According to JS’s first published bankruptcy notice the first hearing in his bankruptcy proceedings was held on 6 June 1842. Although the court records are no longer extant, it appears that no objections were raised during JS’s June hearing and that his case proceeded normally. To fulfill legal requirements, Ralston, Warren & Wheat created a second notice on 17 June, announcing JS’s final hearing on 1 October 1842. This notice, like the first, was published in local newspapers.
In July 1842, excommunicated Latter-day Saint wrote a letter to the editor of the Sangamo Journal including allegations that JS had fraudulently transferred land before filing for bankruptcy. This accusation came to the attention of district attorney , who had begun a lawsuit against JS to recover a debt owed the government for the steamboat Nauvoo, purchased in September 1840. Butterfield inquired of the Solicitor of the Treasury, Charles B. Penrose, whether he should investigate the claims raised by Bennett. Penrose instructed Butterfield to proceed. As a result of his investigation, Butterfield determined that JS had indeed transferred land to noncreditors, including family members, while he was involved in bankruptcy proceedings. As a result, Butterfield filed objections with the Illinois District Court to deny JS’s and Hyrum Smith’s applications for bankruptcy. Because of these objections, the court delayed JS’s final bankruptcy hearing from 1 October to 15 December 1842.
In mid-December 1842, a group including , , , and other church leaders met with in on JS’s behalf hoping to engage Butterfield’s legal services to represent JS in opposing his extradition to . They also discussed JS’s and ’s bankruptcy proceedings. According to Clayton’s notes in JS’s journal, Butterfield was particularly concerned about the judgment owed the federal government for the steamboat Nauvoo. Butterfield expressed his view that this judgment was “the only hindrance” to JS’s application for bankruptcy being approved. In an effort to pay the judgment, on 16 December a group identified as the “High Council of the ” proposed to pay the debt in four installments with interest and to secure the payment with a mortgage worth double the amount of the debt. Having discussed matters with church leaders, Butterfield withdrew his objections against Hyrum Smith, who was not involved in the steamboat purchase or unpaid judgment, and Hyrum’s bankruptcy application was approved.
To address the question of JS’s bankruptcy, wrote to Penrose on 17 December regarding the agreement he had reached with church leaders to pay the judgment. In his 11 January 1843 response, Penrose was wary of the agreement and reluctant to accept the proposed terms. He instead asked church leaders to pay a third of the debt in cash and pay the remainder in three later installments. It is unclear whether Butterfield received Penrose’s January 1843 letter, as Butterfield wrote to Penrose in May 1843 asking again if he was authorized to accept the agreement with the “High Council.” Penrose, Butterfield, and church leaders apparently never finalized or acted on the agreement.
In spring 1843, Illinois District Court assignee apparently began gathering JS’s property to be sold, anticipating JS’s bankruptcy would be approved. Despite these efforts to move forward with his bankruptcy proceedings, it does not appear JS’s petition for bankruptcy was ever formally approved by the court. Although JS hoped to resolve his outstanding debts through bankruptcy, accusations by and the debt to the federal government made that impossible. JS made every effort to pay those debts he could, but many were left unresolved at the time of his death, complicating the settlement of his affairs.
Unfortunately, the trial and other district court records that comprised JS’s bankruptcy proceedings were destroyed in the Great Chicago Fire of 1871. Consequently, there are few surviving documents related to JS’s bankruptcy proceedings. Extant records include a later copy of a portion of JS’s bankruptcy application, comprising the schedules of debts and assets; newspaper notices, which were required as part of the bankruptcy proceedings; letters, particularly those written to or from various district attorneys prosecuting JS and the solicitor of the Treasury; and contemporaneous notes in journals or other correspondence.
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