The word “bankrupt” is derived from two Italian words: banca (table or bench) and rotta (broken), which references Italian traders, who upon becoming insolvent, were said to have a “broken bench” (banca rotta) or in Latin, bancas ruptus.
The word had its French equivalent, banqueroute.
The term appears to stem from a widespread custom in the Genoa Republic of the breaking of a moneychanger’s (or merchant trader’s) bench to signify their insolvency. The term was used as a figure of speech, as well as the description of a literal or physical act.
The term made its way into the English language in the mid-1500s as “Bankruptcy”.
In 1542, during the reign of Henry VIII, England introduced its first bankruptcy statute “An Act against such persons as do make Bankrupt” and so started the development of bankruptcy law.
Historically, those who were insolvent were treated harshly. Until the 1900s, bankruptcy laws were generally crafted in favour of the creditor, and laws punished the bankrupt severely.
Going all the way back to ancient Greece, an indebted man who could not pay was put into “debt slavery” (along with his wife and/or family, if he had one) until the creditor recouped losses through their physical labour. Often debt slavery lasted a lifetime; however, debt slaves had one advantage regular slaves did not enjoy: they had protection of life and limb i.e. their masters were not allowed to kill them or remove any of their limbs.
In the 14th century, according to Al-Maqrizi, the Yassa (a secret, oral law code) of Genghis Khan (Emperor of the Mongol Empire) contained a provision that mandated the death penalty for anyone who became bankrupt three times.
Back in the 16th century in England, bankruptcy was considered a crime; therefore bankrupts were subject to the same punishments as common criminals.
However, with the development of international trade and commerce in the 16th and 17th centuries, attitudes towards bankruptcy and commercial risk shifted. The result was a slow liberalisation of bankruptcy consequences and the relaxation of bankruptcy laws.
Fortunately now, for bankrupts and I think for all of us as a society, modern laws are not nearly as harsh on the bankrupt. Current laws focus less on punishment and more on rehabilitation.