Philip II of Spain declared bankruptcy four times in forty years
The king who ruled much of the sixteenth-century world could not keep up with his bills. Philip II of Spain declared state bankruptcies in 1557, 1560, 1575 and 1596. He had plenty of company: France, Portugal, Prussia and the early Italian city-states all defaulted too, long before modern bond markets existed.
Bankruptcy is the legal route by which people or organisations who cannot pay their creditors seek relief from some or all of what they owe, usually through a court order that the debtor often requests. It is not quite the same thing as insolvency, which can take other legal forms. The word comes from the Italian banca rotta, broken bench. A popular story says Renaissance Italians smashed the bench of a banker who defaulted, though historians doubt the ritual ever happened.
Earlier societies were far harsher. Ancient Greece had no bankruptcy at all: a man who could not pay might see himself, his wife, children or servants put to work for the creditor as debt slaves. Many city-states capped this at five years and protected debt slaves from physical harm, but servants could be kept for life. Athens, under the laws of Solon, banned enslavement for debt, which is why most Athenian slaves were foreigners. The chronicler al-Maqrizi reported that Genghis Khan's legal code, the Yassa, made a third bankruptcy punishable by death. England's first statute on the subject came in 1542.
Modern law has changed its aim. Instead of wiping out failing businesses, insolvency regimes now try to restructure their finances and organisation so they can recover and keep trading. For households, experts argue that debt advice, financial education and supervised rehabilitation matter as much as legal relief. Rules vary widely: the United States grants discharge of debts fairly readily, the UK comes closest among European countries, and Spain's 2003 law offers repayment plans but no discharge. American student loans are a notable exception, cancelled only if a borrower passes a demanding three-part test.
In Australia, bankruptcy applies to individuals, while companies go into liquidation or administration instead. It normally lasts three years, during which a trustee handles the estate and the bankrupt needs permission to travel abroad; leave without it and federal police may stop you at the airport.
Source: Bankruptcy
