Chapter XII Background: The Evolution of Bankruptcy Law

• Jurisdiction: United States

XII. Background: The Evolution of Bankruptcy Law

Bankruptcy law finds its provenance in the late Middle Ages or the early Renaissance as part of the commercial revolution in the Italian city states — not accidentally, about the same time and place as the invention of double-entry bookkeeping. These are both the kind of devices you want to have if you are running a market economy. The word comes from Latin bancus rup-tus, Italian banca rotta and French banqueroute, roughly translated as "broken bench." Folklore says that if a trader fell into insolvency, you destroyed his market stall. Whether anybody ever actually broke a bench in this way is perhaps an open question, but the name seems to stick to a complex of ideas that revolve around the idea of financial distress.

From the original meaning, it is perhaps best to imagine a kind of class action where creditors clubbed together and designated a representative to collect their claims. The discharge did not enter the matter until 1705 in England, when Parliament authorized creditors to grant a discharge as an inducement to cooperation...