Monday, April 13, 2009

What is the origin of the word “bankruptcy”?

Legally speaking, bankruptcy is the inability to pay one's creditors. At various periods in history, there were different ways of dealing with such situations.

The word “bankruptcy” derives from the Italian term “banca rotta”, meaning “broken table”. This comes from the custom of publicly breaking the table of a salesman when they could not pay back their debts. Since this frequently happened on busy days in busy places, the goods they had on sale were often distributed to bystanders. Then, in most cases, the shamed merchant had to leave the city.

Later in history, laws were passed which aimed to distribute fair shares of what was left of the debtor's assets to the creditors. This is called the insolvency process today.

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