Why this? Being a Los Angeles bankruptcy lawyer, my clients often tell me how ashamed they feel. One of the things I can tell them is they they are not alone. In fact, there are many famous people who also have filed bankruptcy. Mark Twain was one of them, (his real name was Samuel Clemens, and he wrote under the pen name of Mark Twain).
Actually, Twain’s bankruptcy is old news, although widely reported in the day and eagerly followed by everyone who read newspapers.
Twain’s “bankruptcy” case was filed in 1894. Technically speaking, the case was actually an Assignment for Benefit of Creditors. It was filed under New York State law. It had to be that way because the Federal Bankruptcy Act of 1867 had automatically expired in 1878. The United States did not have another bankrutcy act until 1898.
The absense of an official bankruptcy act did not mean that people weren’t going broke. They were. Thousands of them did, every year. Many of them simply packed up and left the Eastern towns and cities. They headed out West. Some to the goldfields, but mostly they journeyed to the fertile homesteads and rich grazing grounds that were free for the taking. That is how most folks found a fresh when they needed one, until all the land had been claimed.
I have two reasons for dredging this up. First, I am shamelessly trying to grab a headline. Secondly, if you are in a financial mess then Mark Twain’s personal problems can provide you with the inspiration to make your own come back.
Twain’s financial trouble resulted out of a business partnership he made with his nephew, Charles L. Webster. They were book publishers, and their firm was called Charles L. Webster & Co., at 67 Fifth Avenue, New York.
Twain deliberately kept his own name off the company’s official name, but he actively operated in the background. Trading on his own personal fame, he successfully brought in some major business. He successfully solicited the rights to publish the memoirs of President Ulysses S. Grant. Twain worked closely with the dying general to complete the work just days before Grant’s death from cancer.
Despite being in partnership with his nephew Webster, Twain was the sole responsible party. When the business was originally formed, Twain agreed to take 90% ownership but also agreed to shoulder 100% of all financial responsibility. Of course, Twain could never imagine that the business might fail.
The two of them turned out to be terrible businessmen. Twain simply did not understand how to operate a business and make a profit. He promised his authors far too much in royalties, to the point that there was little or no profit left for him as the publisher. Webster became a drug addict and inflicted huge damage on the firm because of his prolonged absences and absurdly demented business decisions. Whereas Twain signed up major writers, he usually paid them too much. Webster paid out lucrative royalties to authors who had nothing to sell of real literary value. The firm’s demise was in the cards.
Webster was eventually thrown out, but it was too late. The the firm failed anyway. Twain did not accept public shame or ridicule. He publicly announced that he took full moral, (but not legal), responsibility for all of the company debt. In public statements, Twain and his spokesmen declared that Twain had no personal liability but would work to pay back all the creditors in full, as a moral duty. In reality, Twain was legally liable, and most certainly his lawyers would have told him so. There was already at least one judgment against him personally for a large company debt, and he had given personal guaranties on bank loans for the firm.
Twain’s rumored financial difficulties had already been reported in the press for several years. However the full extent of his business failure hit the fan when the insolvency case was filed in court. The court appointed an Assignee to liquidate the firms assets. Twain’s insolvency became the talk of the town. It was reported thusly:
The New York Times, September 19, 1894
The schedules of Charles L. Webster & Co., book publishers at 67 Fifth Avenue, in which firm Samuel L. Clemens (“Mark Twain”) and Frederick J. Hall are the partners, were filed yesterday. They show liabilities of $94,191, nominal assets of $122,657, actual assets of $69,164, less $15,000 hypothecated to the United States National Bank, and net actual assets of $54,164. There are more than 200 creditors scattered all over the United States. Among the creditors are: Mount Morris Bank, $29,500; United States National Bank, $15,000; George Barrow, Skaneateles, N. Y., $15,420; S. D. Warren & Co., Boston, $6,332; Jenkins & McCowan, $5,363; Thomas Russell & Son, $4,623. There is due for royalties: Estate of U. S. Grant, $2,216; Col. F. D. Grant, $727; estate of Gen. P. H. Sheridan, St. Paul, Minn., $374; Mrs. E. B. Custer, London, $1,825.
To give you an idea of just how bad Twain’s debts had become, every four cents in 1894 was worth about the same amount of money as $1.00 is worth today. He was in big trouble, and his personal wealth had been wiped out by covering the large losses of the company over the preceeding years. Twain was flat broke, and there was no alternative except to declare the insovancy case.
Insolvant debtors of Twain’s day had no way out. There was no discharge of debt available in the law, and Twain’s debts were “scattered all over the United States.” Even if a majority of Twain’s creditors had accepted a composition plan to voluntarily reduce what what he owed, it would not have been enforceable to protect Twain from the rest of his creditors outside of New York State.
Twain did not dispair. He dug in his heels and went to work. Despite his age, (he was then 66 years old which made him an old man by the life expectency of his day when most men died in their 40’s and 50’s), he returned to work. He resumed writing and lecturing to earn money. By 1898, he had paid off the debts, and a few years later even regained his personal wealth. When he died in 1911, his estate was valued at $600,000.
Twain’s lesson for those in financial trouble
Twain approached his financial problems with bravery and made an extraordinary personal effort to achieve a comeback. He was not ashamed. Far from being ashamed, he made his problems very public.Very few people who go through bankruptcy today will ever be able to repay all of their debt. In fact, you usually don’t have to. I tell my Los Angeles bankruptcy clients not to do it, if they don’t have to.
Twain’s legacy to you is that your debt problems are a bump in the road, not the end of the road. The laws of today offer a fresh start to those who deserve one.
Would you like to do more reading about personal bankruptcy for yourself? Are you eligible to file bankruptcy? Try these recent articles. They are full of facts, warnings, and the the things you need to know before you ever get near a bankruptcy court: https://www.mybankruptcy.lawyer/los-angeles-bankruptcy-attorney-storm-warning, https://www.mybankruptcy.lawyer/los-angeles-bankruptcy-attorney-share-3-unforgetable-tips, and https://www.mybankruptcy.lawyer/man-sued-for-32000-hoa-dues-after-he-files-los-angeles-bankruptcy-case.
Author’s note: The material for this article was obtained from researching primary source materials. Particulary valuable for understanding Twain’s innermost personal feelings about his insolvancy, is the AUTOBIOGRAPHY OF MARK TWAIN, written by Samuel Clemens. Twains problems surfaced frequently in various editions of the New York Times that appeared throughout the decades of the 1890’s and early 1900’s. The Times proved to be a treasure trove of data for this article.