People find it hard to let something as important as a debt go, especially if the amounts go into five and six figure territories. What can you do, though, if the person who owes the money literally has nothing left to offer? The mob had an answer to that, but the banks had a slightly better one: bankruptcy.
Whenever someone declares bankruptcy, they announce not just to the bank, but to the entire world, that they have nothing. Banks back off on hounding them on their debts, but they literally rebuild their lives from scratch. Though it’s a gut shot to bankers and creditors today, there were times in history when filing for bankruptcy was the absolute worst thing that can happen to a person.
Five Years a Slave
In Ancient Greece, (before the era of bankruptcy attorneys) the concept of debt forgiveness didn’t exist. If a person couldn’t pay their debts, the entire family paid the price. The debtors would become debt slaves to the creditors for a maximum of five years. Treatment was harsh, and some regions didn’t protect slaves from bodily harm.
Fast-forward to 1542 England; debtors were considered criminals, and bankruptcy was punished with sentences of incarceration or death. Marshal sea was the most infamous of these debtor prisons, which functioned more as an extortion racket. Debtors with wealthy relatives who could pay the prison fees had access to a bar, shop, and restaurant, with the added luxury of being let out during the day. This was the most important aspect, as they could work during that time and pay off their debts.
On the other hand, debtors who couldn’t pay prison fees were forced into cramped rooms, staying for decades, hoping their relatives could save up enough money to pay off all their debts. In 1729, it was reported that 300 inmates died within three months, and eight to ten prisoners were dying every 24 hours.
Before the 20thcentury,debtors were still getting the short end of the stick, as American bankruptcy laws focused on recovering the investments of the creditor. Nearly all bankruptcies of the time were involuntary, and bankruptcy lawyers could do very little to help their clients.
Now, aren’t you glad modern bankruptcy laws work in the exact opposite direction from the ways of the past? Filing for bankruptcy is still a pretty raw deal, but compared to what people had to go through back then, it’s not so bad.