Contrary to popular myth, Jefferson never filed for bankruptcy. Indeed, voluntary bankruptcy wasn’t even possible in the United States until The Bankruptcy Act of 1841. By the time the 1841 Bankruptcy Act was passed, Jefferson had been dead 15 years. Disappointingly, many bankruptcy attorneys falsely report that Jefferson did file bankruptcy, failing to check their facts and further failing to understand the history of bankruptcy in this country.
The myth perhaps grew out of Jefferson’s struggles with his finances. Our nation’s third president had a dim view of debt. For Thomas Jefferson, debt compromised freedom of choice, whether attached to an individual or to a nation. As president, he was proud of reducing the national debt. In his personal finances, he was never so successful.
Jefferson was brilliant. The author of the Declaration of Independence and the architect of the Louisiana purchase. His brilliance changed the course of history – for the better. Yet, Jefferson faced many financial struggles. Jefferson’s inheritance from his father, Peter Jefferson, had scant debt attached and was essentially solvent, but Thomas was saddled with substantial debt with his wife’s inheritance. His wife, Martha Wayles Jefferson was entitled to one-third of her father, John Wayles’s, estate, which was sizable but heavily encumbered with debts to British creditors. In such situations the debts could be avoided if the estate remained untouched until creditors were paid, but if the assets were distributed, the debts moved with them.
In 1774, as Jefferson and his brothers-in-law, Francis Eppes and Henry Skipwith, concluded that sales of the less-desirable lands could liquidate the British debts. The plan appeared sound in 1774, but then the Revolution began. Jefferson proceeded with his portion of land sales as planned and accepted the purchasers’ bonds with the pledge to pay in installments, as was customary. Unfortunately for Jefferson, the agreed payments were made in the depreciated paper money issued during the war. After the Revolutionary War ended, The Treaty of Paris of 1783 worked against Jefferson because under the treaty creditors on either side were due payment in sterling silver. In Jefferson’s words, “The paper-money for which my lands were sold with a view to pay off Mr. Wayles’ debts, leave this work to be done over again.”
Jefferson’s debts mounted over the years his land was devalued, in large part, ironically, to the Louisiana purchase which was Jefferson’s brain child. Jefferson’s debts followed him into old age. Shortly after his death, his entire estate was liquidated and his heirs received nothing.
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