The version we know of bankruptcy differs quite substantially from its medieval origins. This is a good thing: medieval debtors often landed up in jail for the debts they could not afford to repay.
One other difference is the purpose of modern bankruptcy: modern bankruptcy exists chiefly to help the debtor. This is in stark contrast to bankruptcy in the 14th and 15th centuries. The word bankruptcy originates from the Italian for ‘broken bench’ – banca rotta. This is in reference to the tradition of breaking a bankrupt tradesman’s bench.

But this doesn’t answer the original question, which is why we allow bankruptcy in the first place?
One easy answer to the question is that we want to help people who are in genuine financial turmoil and from which they cannot escape without a lot of assistance. The other side to this coin is that we believe that people deserve a second chance – in life, in finances, in everything.

We believe that the conditions bankruptcy imposes on people to adjust their expectations of their lifestyle. And we expect them to do things differently after their bankruptcy, so that the bankruptcy acts as both a school and a hospital. A school because it teaches the new bankrupt how to better manage their finances and a hospital because it treats not the symptoms of being in too much debt, but because it treats the root of the problem.

These questions and problems have received much thought from some of the most famous philosophers – since antiquity: the question of bankruptcy deals with ethics and moral duties. We want to ensure that creditors be paid but we do not want to extract a pound of flesh from debtors in order to pay the creditor. This is one of the reasons why we no longer throw debtors who are unable to repay their debts in prisons reminiscent of the middle ages.

The decision to apply for a bankruptcy is not an easy one to make but it can often change the financial circumstances of the person applying for it. And surely that is a good enough reason to allow bankruptcy

Related posts:

1. What are the Implications of a DIY Bankruptcy?
2. How Could John Burton Race Have Dodged Bankruptcy?
3. Is There Life After Bankruptcy?

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