A Brief History of Bankruptcy

The Magna Carta, signed by King John in 1215, decreed a man’s body could not be taken for the failure to pay a debt. After that time, several laws in conflict with the Magna Carta were passed and imprisonment became common punishment for failure to pay debts. These laws made it easy for a creditor to have a debtor imprisoned, and by 1641 it was estimated that in England and Wales about 10,000 people were imprisoned for debt.1 Prisoners in King’s Bench Prison, who were gentlemen, were often arrested on warrants issued by their unpaid tailors. These prisoners then petitioned legislators in 1628 complaining that the Magna Carta had been breached. The Petition of Rights of 1628 said that being imprisoned for debt after trial was different from simply being arrested and imprisoned for debt. In 1628 all debtors, regardless of the reason for insolvency or amount of debt, were punished equally. The timing of the Petition was bad. England was consumed by the Great Rebellion of Cavaliers and Roundheads. It would be seven years before Cromwell could address the issue and he was sympathetic to those on whom the laws were harsh. He told Parliament, “In every government there must be something fundamental, like a Magna Carta, that would be standing and be unalterable.”

History of bankruptcy


By the 1640’s, some changes were being made in the treatment of debtors. But the laws remained simplistic and the legal system had not kept up with the changing economics and complexities of society. There were no provisions for a debtor with assets tied up by inheritance laws, will, or by trustees. There were no protections for debtors who had paid as much as they could to their creditors, and no provisions for men once they were imprisoned. Debtors were still basically at the mercy of their creditors. While other European countries did not imprison men for longer than a year for debt, England’s debtors were imprisoned indefinitely, side by side with hardened criminals in horrendous conditions. It was the horror stories from these prisons and the increasing numbers of debtors dying in prison that brought matters to the attention of the authorities. As late as the 1850’s, Charles Dickens, one of the outspoken critics of the system documented his personal tribulations with Marshalsea Prison in his semi – autobiographical novel, David Copperfield.


Reports on conditions in the Marshalsea Prison around 1749 show that several prisoners died daily from starvation and disease. Families of those arrested would become dependent on charity and often moved into the prisons, which became communities in themselves. Bailiffs, tradesmen and attorneys benefited from keeping the system intact. Bailiffs in particular had lucrative incomes from charging prisoners for food, cells, clothing and favours. Tradesmen added charges to the amounts of debts for the cost of having a debtor arrested. Attorneys profited from court proceedings.3 As bad as the Marshalsea Prison was, the Fleet Prison was worse. (Described by Dickens in The Pickwick Papers.) When the Fleet Prison was finally closed in 1842 by an Act (5&6 Victoria cap 22), some debtors in the process of being moved to the Marshalsea Prison, had been found to have been imprisoned there for as long as 30 years for debt.


From 1649 to the end of the century, legislation began to relieve the harshness of the laws. By 1682 debtors were jailed separately from criminals (22,23, Charles II cap 20). By the Act of 1808 (Geo III cap 123), anyone who had been in jail for a year for a debt of less than L20 was allowed to petition for release. The law also attempted to compel creditors to accept some payment, although creditors did not have to agree to let a debtor be released. The release of a debtor from jail did not discharge the debt. It wasn’t until 1869 that debtors prisons were finally abolished and the Bankruptcy Act of the same year began to address the complexities of the debtor/creditor relationship.

Andy Gorton is the author and editor of the Bankruptcy Clinic

Andy Gorton – who has written posts on Bankruptcy Clinic Blog.

Leave a Reply

Your email address will not be published. Required fields are marked *