While I could see investing into durability a nice added effect, completely breaking an item shouldn't make it totally worthless and unrestorable. Otherwise Aragorn would never have been able to reforge his kingly sword, and nobody would have to have travelled to Mt. Doom to toss the ring into the magma and destroy it, as they'd simply had to have let Gimli wear it into battle too many times.
Maybe when it reaches 0 durability, it's considered so fractured that you can no longer use it at all until fixed and need to pay a much larger amount to re-set or reforge an item, you need to find its base components again to replace things like an axe-handle or hilt, or you need to completely melt it back down again.
Of course we could just let the thing completely break, but then let broken items be recycleable. Matter is neither created nor destroyed, just warped out of shape until its unusable in its present form. You would not however be completely lacking new mithral if your mithral sword broke, you'd just have to melt it all down and start over from scratch, perhaps adding another ingot or two to make up for the amount burned off during forging.
I was a big fan of the repair skill and repair hammers in Elder Scrolls: Oblivion. Their item recharging was a bit too expensive compared to the original cost of most items, but their repairing skill and methods was spot on. In our version, we should make repairs for each item based on the CNR crafting skills of the type of item. So armorcrafters can deal with metal armors, tailors can mend lighter armors, weaponsmiths can reforge swords, gemcrafters can reset rings, etc. That would make them able to expand from base sales to maintanance, and if we allowed CNR authoring, where a crafter could sign their name to an item to indicate their works, we could even add maintenance and warranty service plans along with the original sale. "Iffn this armor breaks on ye in the next 30 days, ah'll fix it fer ye for free?" or "Lifetoime guaruntee lad... ah sold ye it, ahll fix it fer ye or replace it as need be". I could see Dorandites proudly offering such warranties to testify to their workmanship, and make themselves known by signing each piece of equipment with their signature.