The scandals associated with these and other incidents prompted the U.S. Congress to pass the Bankruptcy Act of 1800, modeled on English practice, which limited petitioning a creditor for relief to merchants, bankers, and brokers.
Former Continental Congressman William Duer raised large sums of money to invest in bank stock and government securities, novel and financially sophisticated assets whose risks many contemporaries failed to understand.
[4] Duer and other prominent financiers then sought to recover their fortunes by inciting land speculation, an old concept applied on unprecedented scale too.
Rampant business failure plagued Eastern port cities by late 1796, and land speculators less preeminent than Morris soon found themselves in debtors' prison.
The monetary strain imposed by the Napoleonic Wars and withdrawals by panicked depositors had greatly depleted the coin and bullion reserves of the Bank of England.
[12][13] Associate Justice of the U.S. Supreme Court James Wilson was forced to spend the rest of his life literally fleeing from creditors until he died at a friend's home in Edenton, North Carolina.
Port cities along the Eastern Seaboard suffered much worse than the rural interior, which had not yet developed the intricate webs of credit and market exchange that would drag it into future panics and depressions.
In spite of and perhaps validating the prescient warnings of the dangers of foreign entanglement laid out in George Washington’s Farewell Address, the panic demonstrated that the nascent American economy would be subject to ripples of political turbulence on the European continent, an effect that later prompted Thomas Jefferson to sign the Embargo Act of 1807.
[17][18] Finally, the imprisonment for indebtedness of such prominent American statesmen as James Wilson and Robert Morris compelled Congress to pass the Bankruptcy Act of 1800, establishing a framework for creditors and debtors to cooperate in reaching a settlement.
Though critics, who argued that the law encouraged risky investments by reducing the cost of failure, prevented its renewal in 1803, the act represented a step in the American legal tradition against imprisoning debtors.