A History of Ancient Bankruptcy Laws

By: Donald L. Swanson

Etymology of the word “Bankrupt”

According to the 1899 treatise linked below, the word “bankrupt” comes from the ancient days of Florence, Italy, when that city “occupied a prominent place among the commercial cities of the world.”

The word “bankrupt” arises from the Latin words, “banca rotta,” which mean “broken bench” or “broken counter.”  A creditor’s custom, for a debt-delinquent merchant in ancient Florence, is to break the merchant’s bench or counter.

The British later adopt this phrase in its own debtor/creditor laws but anglicized it like this:

–insert “bank” for “banca”; and

–replac “rotta” with “rupt,” which means “broken” (“rupture” is a derivative).

Hence, the word, “bankrupt.”

Ancient Bankruptcy History

Centuries before the rise of Rome, creditor/debtor remedies are harsh.  The Draconian code, for example, “permitted creditors to dismember the body of their debtor.”

Ouch!!

As Rome rises to predominance, however, creditor/debtor laws improve.

–In Caesar’s time, the “distinguishing feature of modern bankruptcy” begins:

“the debtor who surrendered all of his goods to his creditors was relieved of the harsh penalties of the older systems.”

–And, over subsequent time, such penalties “were further mitigated by discharging him of his obligations.”

England Bankruptcy History

The first English law on debtor/creditor issues (enacted in 1542) is, essentially, a penal statute:

–“Debtors who fled the kingdom or concealed themselves were made criminals, and their effects were seized and distributed among their creditors without extinguishing their obligations.”

–These provisions applied “to all who ‘craftily obtaining into their hands great substance of other men’s goods, do suddenly flee to parts unknown, or keep their houses, not minding to pay, or return to pay, but at their own wills and pleasures consume the substance obtained by credit from other men for their own pleasure and delicate living, against all reason, equity and good conscience.’”

The term “acts of bankruptcy” is first found in The Charitable Uses Act of 1601 (a/k/a the Statute of Elizabeth).  Such “acts” allow a commission to seize and distribute a bankrupt’s property.

Upon enactment of the Statute of Anne in 1706, bankruptcy becomes a civil matter, instead of a statutory crime.

–A debtor can now surrender all his property to a commission and receive a “discharge” of “his person” and of “any property that he might subsequently acquire” from all existing debts.

The treatise linked below explains that this “humane enactment” of 1706, which is “followed in all subsequent legislation on the subject,” has a two-fold object:

“(1) To dedicate the property of an insolvent debtor to the ratable payment of his debts”; and

“(2) to grant him a discharge from his existing obligations, to the end that he may be restored to the activities of life, freed from the burdens visited upon him by previous misfortunes in business.”

The 1899 treatise adds this opinion on such two-fold object of the 1706 law:

“It may be justly remarked that there is nothing more to be accomplished by any law on the [bankruptcy] subject; all other provisions are matters of detail more or less effectively designed to accomplish these ends.”

TREATISE:

Bush,   “The National Bankruptcy Act of 1898, with Notes, Procedure and Forms“, (1st Edition, 1899), The Banks Law Publishing Co.

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