Bankruptcy

Bankruptcy is the legal state of being unable to make good on one's debts. Originally a crime—the accusatory origins of the word are retained when we refer to someone as “morally bankrupt”—ideas about and practices concerning bankruptcy have evolved over thousands of years, changing as do economic systems. Though the negative connotations of the word remain, it is now a thing that can be entered into strategically, even to the benefit of all concerned parties.

History

The need to deal in some fashion with an individual's inability to pay his or her debts is as old as debt, as old as money. A wide variety of remedies developed in different economies. In ancient Jewish law, the debts of Jews are cleared every seventh year, and every 50th year is the Year of Jubilee, clearing all debts, Jewish and otherwise. At the other extreme, Genghis Khan prescribed the death penalty for anyone who had become bankrupt three times.

More widespread, with a good deal of variation, is the ancient Greek practice of debt slavery, in which families and their servants were forced to labor without recompense in order to pay off the debt of the head of household. Debt slaves were not “sold into slavery”—they had more rights than other slaves, and indentured servitude might be a more accurate term for the practice. “Debt slavery” continues to be used figuratively, to refer to the necessity of continuing to earn a certain amount in order to pay off one's debts—the lifestyle one is locked into when one has had to enter into debt in order to acquire necessary luxuries like a financed car, a mortgaged house, and a college education. However, in that modern figurative use, bankruptcy is the remedy (as it were) to debt slavery, rather than the other way around.

In the Middle Ages, individuals accused of bankruptcy (or operating businesses accused of bankruptcy) could be publicly flogged, a solution that helped no one per se but was intended as a deterrent and to satisfy the public need for the service of justice. In England, they could have their ears cut off, or nailed to a wall—punishments which, while more vicious than sending them to debtors' prison, did not prevent them from continuing to work to try [Page 113]to pay off their debts, nor did it add the cost of their upkeep to the state's bills.

The common thread here is that bankruptcy was a form of fraud. The debtor had agreed to pay a debt he proved unable to pay. The word bankrupt comes from the Latin bancus ruptus, broken table; a bancus (from which both bank and bench derive) was a table at which the ancient bankers sat in marketplaces and other public places. When he could no longer do business, he broke the table (or it was broken for him) as a sign that he was no longer doing business. From the start, then, bankruptcy has been a figurative term, used to refer to people who were as bereft as these broken bankers.

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