What happens when a debt cannot be repaid, from debt slavery to bankruptcy?

When someone cannot repay what they owe, societies have answered in very different ways. Bankruptcy, in its modern form, is a legal process through which people or other entities who cannot repay debts may seek relief from some or all of them. Its name comes from the Italian banca rotta, meaning broken bank, and a popular story says Italian bankers' benches were smashed when they defaulted, though whether that ritual existed is doubted.

Before bankruptcy law, the answers were harsh. In ancient Greece a man who could not pay, along with his family or servants, could be forced into debt slavery until the creditor recouped the loss through their labour. Athens was an exception: the laws of Solon forbade enslavement for debt. In England the Statute of Bankrupts of 1542 was the first statute dealing with the problem.

Then came debtors' prisons. Until the mid-19th century they were a common way to deal with unpaid debt in Western Europe, holding people until they worked off the debt or found outside funds. In England 10,000 people a year were imprisoned for debt in the 18th and 19th centuries, and jail did not reduce what they owed: inmates typically had to repay the creditor in full before release. Charles Dickens's father was sent to the Marshalsea, and Dickens described such prisons in his novels, including Little Dorrit. France abolished prison for civil debts in 1867; England abolished imprisonment of debtors completely only in 1970, with a few exceptions.

Modern law offers a way out instead. In US Chapter 7, a debtor surrenders non-exempt property to a trustee, who sells it and pays unsecured creditors. In Chapter 13, debtors keep their assets but devote part of future income to repaying creditors, generally over three to five years. In France, the Banque de France handles over-indebtedness in a free procedure, and when a situation is beyond repair, a personal recovery procedure allows the erasure of all debts or a court liquidation.