BANKRUPTCY. The word tends to conjure up images of moral
turpitude, lack of character, and failure.
This attitude, though, has no basis in fact. Bankruptcy as a legal process was well-known
at the founding of our nation, and is provided for in our Constitution. Even long before that (if one seeks counsel
in the Bible), Deuteronomy 15:1 admonishes creditors that "[a]t the end of
every seventh year you must cancel the debts of everyone who owes you
money." "Moral
turpitude," indeed!
The economic climate since 2008 has
wreaked havoc on the financial stability of most of our citizens. The failure of our economy to sustain growth
has resulted in the elimination of many good jobs capable of supporting a
family, the devaluing of real estate that many borrowers were told could form
the basis of an investment, and the shrinkage of many, many other financial
investments made by ordinary people, under the guise that the firms handling
those investments would hold the investors’ interests above all else. As a result, way too many family homes have
been lost through foreclosure, in some instances enough to blight entire
neighborhoods; retirement and other savings have been wiped out; unemployment
and the inevitable credit defaults have risen to an all-time high. The fault is not all due borrowers' unrealistic
desire for "more, bigger and better."
To a large extent, much of the blame must fall squarely on the shoulders
of government fiscal policy, deregulation, creditors' greed, and – well, the
greed of the financial sector in general.
The promise to repay a debt is not a moral obligation, it is a
contractual one, based on realistic financial considerations. It is an agreement between two parties, both of which are
theoretically capable of dealing with each other as equals. It is based on certain financial assumptions,
i.e., that the parties will deal fairly and squarely with each other, that the
lender has the ability to provide that which the borrower desires, and that the
borrower has (and will continue to have) the ability to repay the debt
according to the agreed-upon terms. Most
of the time, the agreement works out more-or-less to the benefit of both
parties. But what happens when one or
more of those assumptions change?
In contract law, "impossibility of performance" may sometimes be
a valid defense. But not when applied to credit and debt collection. What is the fate of the
person who loses his job and can no longer repay the debt under the terms set
by his creditor? What defense has the
small business owner whose lender, sensing a weakening economy, withdraws the
line of credit, thus cutting off the business’s oxygen and leaving nothing but
debts? Under our current laws, inability
to pay is NOT a defense. The creditor
retains the legal option of forcing payment, by levy and seizure of assets and
wages, and in some US jurisdictions, by imprisonment. SEE: Debtor's Prison
Bankruptcy provides a debtor with legal protection
against the rapacious creditor who demands performance of the credit agreement
despite the debtor's inability to perform.
Make no mistake, the bankruptcy laws do not operate
solely for the benefit of Joe Average citizen and his family. Many others have filed for bankruptcy,
including presidents Grant and McKinley, Mark Twain, Henry Ford, Walt Disney, and
numerous other well-known and respected people.
Bankruptcy relief has also been sought and granted to some of the nation's
largest corporations. Can any one name a
major airline carrier that hasn't been in and out of bankruptcy at least
once? Chrysler, CITgroup, Trump Resorts,
the Philadelphia Inquirer – all have petitioned for bankruptcy relief
recently. It was once said that
"what's good for GM is good for America" – and bankruptcy restored GM
to financial health. THAT is the purpose
of bankruptcy.
The recent economic crisis has been like a tornado
tearing at our financial expectations, and it has taken its toll on everyone,
big and small. Many feel that the worst
is over, and recovery is on its way. One
of the first tasks of recovery, though, is to clean up the debris left in the
wake of the disaster. Part of preparing
for a new financial future is jettisoning the oppressive and useless burden of
old debt. Once unencumbered by the
global excesses of the past, one can move forward into a brighter future. Bankruptcy is the legal tool specifically
designed for that task.
Bankruptcy --
moral turpitude and failure? Not at all!
In the right circumstances, it can be sound financial strategy.
