In ancient Israel, every 7 years (sabbatical year) debtors were forgiven part of their debt and every 50 years (the year of jubilee) all debts were cancelled, some mortgages were released, and all servants and indentured slaves were released . In the meantime, family members were entitled to make payments on any property or person that had been seized to satisfy the debt.
In ancient Greece and republican Rome, debtors suffered death, slavery, mutilation, imprisonment, or exile. Roman Republic Law allowed multiple creditors to display a debtor in the forum for three days and divide the debtor into pieces to satisfy the debt.
There is evidence to suggest that various creditors could also seize the body of a deceased debtor and hold it as ransom from the debtor’s heirs until the debt is paid.
By the time Rome became an empire, around the 2nd century AD, debtor slavery had been abolished, debtor’s prison still existed. The debtor could be held for ransom until the debtor’s friends and family pay the debt.
In the Middle Ages, the church proclaimed sinful debt and insolvency. Debtors were subject to excommunication in life or denial of a Christian burial at death. Punishment of debtors was necessary to help the landowning and religious ruling classes maintain their power.
The first bankruptcy laws emerged at the end of the Middle Ages. The laws provided protection against fraud against creditors arising from an inequitable distribution of assets and protection of the debtor against imprisonment.
In 1283 he authorizes the seizure of the debtor’s assets to satisfy the debt. If the seized assets were insufficient to satisfy the debt, the debtor was imprisoned until the debt was paid.
In 1542 in England, the first known bankruptcy law was passed to give creditors options against debtors who did not pay their debts. Under this law, debtors were considered criminals.
In 1570, England passed its second bankruptcy law, among other things; the bankruptcy was initiated by the creditor and involuntary by the debtor. Once the debtor’s assets were seized, sold, and distributed to creditors, the debtor was not released from debt and creditors were able to continue their collection efforts.
English debtors before 1705 rarely knew of debt forgiveness.
England enacted a statute in which creditors could receive a full discharge of debts, while retaining exempt property as long as certain conditions were met.
In 1823, when Charles Dickens was 12 years old, his father was sent to debtors’ prison in the Marshalsea. Charles started working in a boot factory for 10 hours a day to pay for his lodging and help support his family.
The Debtors Act 1869 is an English statute that abolished imprisonment for debt except in certain cases, such as where a debtor owed a debt to the Crown or a debtor had money but refused to pay. The statute also made it a misdemeanor to obtain credit under false pretenses or to defraud creditors.
In the United States until the mid-1800s you could go to prison for not paying your debts. In 1898 the Bankruptcy Law allowed both voluntary and involuntary cases. Debtors could keep exempt property and cancel virtually all debts. In 1938, the bankruptcy laws were revised by Congress and the law that exists today is the Bankruptcy Act of 1978. Since then, various amendments and changes have been made.