This word carries several meanings: a person or organization legally declared unable to pay outstanding debts; completely lacking in a particular quality or value; and, as a verb, to reduce someone to bankruptcy.
Synonyms: insolvent, failed, ruined, owing money, in the red, in arrears, in receivership.
In the sixteenth century, moneylenders or traders used to conduct their business on benches outdoors. The usual Italian word for such benches was banca — hence today’s ‘bank.’ A banca rotta was a ‘broken bench.’
In his dictionary of 1755, Samuel Johnson noted the common legend that when a money-dealer himself became insolvent, his table was duly broken as a sign to others. Whether or not this was true, banca rotta, which morphed into ‘bankrupt’ in English, was definitely used figuratively to mean someone who had gone out of business — and indeed the modern sense of being ‘broke’ comes from that very same origin too.
In Ancient Greece, the concept of bankruptcy did not exist. If a man could not pay his debts, he and his wife, children, or servants were forced into ‘debt slavery,’ until the creditor recouped losses through their physical labour. Many city-states in ancient Greece limited debt slavery to five years, but servants of the debtor could be retained beyond that deadline by the creditor and were often forced to serve their new lord for a lifetime. An exception was Athens which, by the laws of Solon, forbade enslavement for debt; as a consequence, most Athenian slaves were foreigners.
The Statute of Bankrupts of 1542 was the first statute under English law dealing with bankruptcy or insolvency. Bankruptcy is also documented in East Asia. The Yassa of Genghis Khan contained a provision that mandated the death penalty for anyone who became bankrupt three times.
The failure of a nation to meet bond repayments has been seen on many occasions. Philip II of Spain had to declare four state bankruptcies in 1557, 1560, 1575 and 1596.
The principal focus of modern legislation for insolvency is on the remodeling of the financial and organizational structure of debtors experiencing financial distress. This may allow for the rehabilitation and continuation of the business. For private households, the focus is on a supervised rehabilitation period, financial education and social help.
Bankruptcy for student loans is considered a last resort. The individual with student debt must give a series of reasons and do tests (with steps) to prove that the debtor cannot pay the debt.
Bankruptcy fraud is a white-collar crime. The fraud usually involves concealment of assets, destruction of documents, conflicts of interest, fraudulent claims, false statements or declarations, and fee fixing or redistribution arrangements. Multiple filings for bankruptcy are not in themselves criminal, but they may violate provisions of bankruptcy law.
May none of us ever have to suffer the pain of a ‘banca rotta’!