The recent reform of the Italian Insolvency Act has broadened the possibility for distressed firms to reach a restructuring agreement and has introduced the possibility of a discharge at the end of the liquidation procedure. The access to these tools is, however, not allowed to small entrepreneurs and consumers, whose assets and income can therefore be chased for ever by their creditors. Such a regime is not consistent with the model of optimal regulation developed by the economic literature and with the international trend in bankruptcy legislations. Most western countries do have legal provisions allowing over-indebted individuals to obtain a financial “fresh start”. The aim of this paper is to analyse the economic purposes and effects of a personal bankruptcy law in general, and how they are reflected in the reforms recently adopted in some industrialized countries. Based on the results of this analysis, an attempt will be made to outline the reasons for introducing a personal bankruptcy procedure in Italy, the conditions it should satisfy and to evaluate the recent reform proposal contained in the legislative Draft (A.S. Nn. 307) approved the 1 April 2009 by the Italian Senate.