History of Bankruptcy – Part 1 (Origins & History of Bankruptcy)

Debt is not a modern concept nor is the inability to repay one’s debt. Systems for debt forgiveness appear to have existed for as long as the concept of debt has. In ancient Greece, the modern concept of bankruptcy did not exist; however, there was a system in place for a lender to recoup their losses when a borrower defaulted on their debts – which entailed the temporary enslavement of the borrower’s entire family. While debt slaves had protection over life and limb under the law and after a 5-year period their debts were erased, this attempt to make borrowers whole again is clearly much less forgiving than the modern bankruptcy system. Today, debt slavery still exists in some nations, with horrific side effect of incentivizing problematic lending to those who have no hope of repaying their debts. Through such debt slavery, a predatory lender can enslave debtors, their families, and even their children.

Conversely, the concept of total forgiveness of debts through bankruptcy has been around for thousands of years. The word bankruptcy is typically linked to the Latin terms “bancus” (a bench or table) and “ruptus” (broken). In ancient public markets, a banker would set up business using a particular bench. The bench would hold their money and when a banker went out of business they would break the bench to let others know that they are out of business. In Italy, this practice was common enough that the term bankrupt is thought to be sourced from the Italian “banco roto” which means broken bank. There is documented evidence of a bankruptcy process in the Yassa (an oral set of laws) under the rule of Genghis Khan, which contained a provision that prescribes the death penalty for anyone who has become bankrupt three times.

Bankruptcy as a concept can even be found in religious texts. In the Torah, or Old Testament, the Mosaic law proclaimed that every seventh year was a Sabbatical year where all debts owned by Jews are released. The seventh Sabbatical (or 49^th year) is followed by another Sabbatical year known as Jubilee, where all debts (and along with them, any debt slaves) are released, regardless of religious affiliation.

Much later in 1542, England codified bankruptcy laws which considered a bankrupt individual a criminal subject to punishments including incarceration in debtors’ prisons and even the death penalty. However, bankruptcy became more a widespread practice during the 16^th century, during which the first bankruptcy declaration was made by an entire country, Spain. In 1705, the first “modern” version of bankruptcy was enacted in America with the passage of the Statute of Anne. Under Anne, forgiveness of unpayable debts was granted as a reward for those who cooperated in gathering goods and assets to produce these as payment to creditors.

Today, bankruptcy in America looks nothing like the solutions tried out in the past. Debtors’ prisons are luckily a remnant of the past, and seeking debt forgiveness is a regular economic activity. While some stigma remains, attitudes towards debtors have significantly softened since the days of Genghis Khan and Henry VIII.

To learn more about how bankruptcy can provide you with debt relief today, please feel free to reach out to your Yuba City bankruptcy attorney at (530) 797-4402 to discuss how bankruptcy can help you today.