Why Did Joseph Smith File for Bankruptcy?

In the 1840s, Nauvoo’s position along the Mississippi River had the potential to provide a plethora of economic opportunities for the Latter-day Saints—if they could find a way to transport people and goods through a narrow channel around the treacherous Des Moines rapids, which lay just to Nauvoo’s south. To that end, Joseph Smith and four other entrepreneurial Latter-day Saints had purchased a former government steamboat—appropriately called the Des Moines—at a public auction in Quincy, Illinois, on September 10, 1840. Peter Haws was the principal purchaser, and Joseph, his brother Hyrum, and two others signed the purchase as guarantors.¹

“The boat weighed 93 tons, was 120 feet long, and was about half the size of an average Mississippi steamer—hence, admirably suited to negotiate the rapids.”² The new Latter-day Saint owners renamed it Nauvoo and “put it to work transporting passengers and freight up and down the Mississippi.”³ Unfortunately, after just two months of operations, the Nauvoo was run aground, and “the damage was serious enough that the Nauvoo never operated again under Mormon control.”⁴ This wreck sank any hopes the Saints had of using the Nauvoo to bring economic opportunities to the city and drowned the purchasers in debts that were hard to pay off—especially without the income the operations of the steamer had been expected to bring in.⁵

The Latter-day Saint owners had sued the river pilots for negligently operating the steamer and had writs for their arrest issued just a couple of weeks after the wreck. But when the pilots were released on bail, they fled the state.⁶ Attempts to collect from investors who had purchased majority interests in the steamer’s operations also failed.⁷ Furthermore, the principal buyer of the steamboat, Peter Haws, was evidently nowhere to be found when the US government came to collect on the debt owed for the purchase.⁸ As a result, the obligations to pay fell squarely on the shoulders of Joseph Smith and the other guarantors.

The debt came due in May 1841, but it would be another year before the US attorney for Illinois, Justin Butterfield, filed suit to collect on the debt.⁹ By this time, Joseph had many other mounting debts from both personal and Church-related purchases, which altogether totaled over $73,000.¹⁰ Earlier in 1842, a new bankruptcy act was passed by congress “to help relieve debtors from the nationwide depression that had begun with the Panic of 1837.”¹¹ In April 1842, two months before default judgment was rendered on the steamboat debt, Joseph Smith and several other Latter-day Saints took advantage of this new law and filed for bankruptcy.¹²

At the time, nearly all bankruptcy filings in Illinois were accepted—only 8 out of the 1,433 filings were opposed. Joseph’s and Hyrum’s filings, however, were two of those eight, thanks in part to allegations of fraud made by John C. Bennett. Bennett was the former mayor of Nauvoo who had helped Joseph Smith and others draft the Nauvoo charter and shepherd it through the legislative approval process.¹³ He had since left the Church and had a falling out with Joseph and was spreading various rumors and allegations against him.¹⁴

Bennett alleged that Joseph had fraudulently transferred nearly 300 acres of land to the Church in order to avoid losing it in the bankruptcy suit. In the bankruptcy act, any property deed made “in contemplation of bankruptcy” was considered “utterly void,” thus preventing people from fraudulently entering into deeds they had no intention of paying or from transferring the ownership of assets just before declaring bankruptcy to prevent it from being taken.¹⁵ Under the law, any conveyance of property more than two months before filing for bankruptcy “was presumed to be valid and legal.”¹⁶

The property in question—239 town lots in Nauvoo—had originally been purchased for the benefit of the Church, and its formal transfer to the Church had been signed and notarized in October 1841 after “the Quorum of the Twelve had agreed that Joseph should separate Church property from his own assets” during that month’s general conference.¹⁷ This was well before the bankruptcy act had even passed and six months before Joseph applied for bankruptcy himself. Thus, the transfer of land was legal and valid.

Despite a lack of evidence for fraudulent activities, Butterfield (the US attorney for Illinois) opposed Joseph’s and Hyrum’s application for bankruptcy after investigating land records in Nauvoo.¹⁸ Claims of fraud, however, may have just been a pretense. The real issue seems to have been that the two owed a debt to the federal government, and government officials “were determined that the steamboat debt must be paid.”¹⁹

When Butterfield actually met with Hyrum Smith, along with representatives acting on Joseph’s behalf, in Springfield, Illinois, he “permitted Hyrum to be discharged in bankruptcy and recommended approval of a proposal made by Joseph’s representative … to settle the entire debt to the United States.”²⁰ A month later, Butterfield showed “respect for Joseph’s financial integrity” by accepting promissory notes as payment for lawyer fees in a different case.²¹ For a variety of reasons, it would be another decade—well after Joseph’s death—before the debt was completely settled, but the federal judge involved in the case found no evidence of fraud on Joseph’s part.²²