... The second instance Jesus gives is, "If anyone takes you to court and sues you for your outer garment, give your undergarment as well." The situation here is dealing with collateral for a loan. If a person was trying to get a loan, normally they would use animals or land as collateral for the loan but the very poorest of the poor, according to Deuteronomy 24:10-13, could hock their outer garment. It was the long robe that they used to sleep in at night and used as an overcoat by day. The creditor had to return this garment every night but could come get it every morning and thus harass the debtor and hopefully get him to repay.
Jesus' audience is made up of debtors -- "If anyone takes you to court..." He is talking to the very people who know they are going to be dragged into court for indebtedness and they know also that the law is on the side of the wealthy. They are never going to win a case. So Jesus says to them, "Okay, you are not going to win the case. So take the law and with jujitsu-like finesse, throw it into a point of absurdity. When your creditor sues you for your outer garment, give your undergarment as well."
They didn't have underwear in those days. That meant taking off the only stitch of clothing you had left on you and standing nude, naked, in court. As the story of Jonah reminds us, nakedness was not only taboo in Israel. The shame of nakedness fell not on the person who was naked, but on the person who observed their nakedness. The creditor is being put in the position of being shamed by the nakedness of the debtor. Imagine the debtor leaving the courtroom, walking out in the street and all of his friends coming and seeing him in his all-togethers and saying, "What happened to you?"
He says, "That creditor has got all my clothes," and starts walking down to his house. People are coming out of bazaars and alleys, "What happened? What happened?" Everyone is talking about it and chattering and falling in behind him, fifty-hundred people marching down in this little demonstration toward his house. You can imagine it is going to be some time in that village before any creditor takes anybody else to court ...
http://www.csec.org/csec/sermon/Wink_3707.htm