Bankruptcy, like many words, stems from the ancient Latin vocabulary. The word “bancus” meant bench and “ruptus” meant broken. In old Italy, bankers operated in public markets or fairs, on a bench. This is where they exchanged monies and had dealings with the public.
If one of these bankers became insolvent and was no longer able to operate his business, he would break his bench to let the public know. This would alert his customers and public that he could no longer do business with them.
In Ancient Greece, there was no such thing as bankruptcy. Quite the contrary, if a man could not pay his debts, he, his wife, his children, and all of his servants would be turned over as debt slaves to the creditor. Once the creditor recouped his losses, through their labor, the debtor and his family could go free, but the debtor’s servants were usually kept by the creditor. Some city-states had laws protecting the life and limb of debt slaves and limiting the debt slavery to 5 years or less.
The Qur’an, of the Islamic people, is an ancient religious document. It teaches that men who are unable to pay their debts on time should be allowed time to pay these debts. The Qur’an states, “And if someone is in hardship, then let there be postponement until a time of ease. But if you give from your right as charity, then it is better for you, if you only knew.”
The Old Testament, or Torah, indicates that by Mosaic Law, every seventh year members of the community are released of their debts. Foreigners are not included in this law. But every 49th year (7 times 7), foreigners are also included in this “Year of Jubilee” when all debts are released. The Year of Jubilee is celebrated with the blowing of trumpets in Israel.
The first law to be enacted in England regarding bankruptcy, was put into effect in 1542. The Statute of Bankrupts, as it was called, dealt with insolvency in a harsh way, forcibly removing all of an individual’s belongings for creditors. A much harsher law, enacted in East Asia by Genghis Khan, called for the death of anyone who was bankrupt three times.
Thankfully, modern bankruptcy laws are significantly more lenient than this. And, instead of strictly punishing the debtor, many of these laws look to the possibilities of reorganization and resolution of an individual’s or company’s financial insolvency.