The word “bankruptcy” comes from medieval Italy. Back then, money lenders and dealers worked from benches or tables in public markets. The Italian words “banca rotta” mean “broken bench.” This is where our modern word comes from.
When a money lender ran out of money and could not pay people back, something dramatic happened. Their bench or table was broken in half right there in public. This told everyone that the person was done with business. It was a way to shame them in front of the whole community.
As per Knowbe4, the word moved from Italy to France, where people called it “banqueroute.” Then it made its way into English around the 1560s. The French version was even worse than the Italian one. In France, the word meant more than just being broke. It also meant the person was a fraud or had no morals.
Things were actually much older than medieval Italy
The Romans had their own way of dealing with people who could not pay their debts. They called it “cessio bonorum,” which means giving up your goods. A person could hand over everything they owned to the people they owed money to.
In return, they would not go to jail and would not be treated like criminals. This system started during the time of Julius Caesar or Augustus. The person could keep enough to survive and did not face the brutal punishments that came with other options.
The origin of the word bankrupt
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England made its first real bankruptcy law in 1542 when King Henry VIII was in charge. The law was meant to stop people from running away to other countries when they owed money. But this law only helped the people who were owed money, not the people in debt.
Only the lenders could start a bankruptcy case. The person who owed money got no help at all. The law changed a few times over the years. Big updates happened in 1705 and 1831. These changes made the law apply to more types of business people, not just merchants. The United States put bankruptcy rules into its Constitution. This gave Congress the power to make laws about it. The first major American bankruptcy law that lasted was the Bankruptcy Act of 1898.
It stuck around for 80 years. Congress has changed the law many times since then. The most recent big change was in 2005. Now bankruptcy laws are less about punishing people and more about helping individuals and businesses start over after money problems.
