Moral Implications


     Bankruptcy has a stigma. It should have a stigma. When you borrow money, you are supposed to pay it back, on time, and in full. You must make every effort to earn or otherwise obtain the money necessary to make good on your promises to repay your debts.

     But things happen in life, some of which cannot reasonably be foreseen. Statistically, some of us will simply suffer a series of events that render us incapable of fulfilling every promise to repay debt.

     And just because an individual is in debt does not mean that they have made unwise choices. Many people have unavoidable medical emergencies which drain the wealth of even the most cautious consumer and frugal saver. Even in good times, some people suffer a job loss for reasons entirely beyond their control, and are not able to quickly replace the lost income.

"Experts" Fail Regularly

     Further, these days, with the world's financial experts having so often made a mess of the economy, who can point to the average citizen and accuse them of moral depravity because they can no longer pay all of their debts? The markets are better now, but think just a few years back.

     For example, consider the hundreds of banks that the FDIC has had to close since the beginning of 2007. Banks are supposed to be the pinnacle of financial stewardship - they have to at least appear financially sound to attract deposits from consumers. Further, they are highly regulated, with restrictions on how much of their reserves they can loan out and the nature of the investments they make.

     Yet many banks have failed, and many more financial institutions have been chopped up into little pieces or absorbed into larger, "too big to fail," conglomerates to cushion the economic impact of their mismanagement. And it's not just finance companies. General Motors, the largest automaker in the world in 2008, declared bankruptcy in 2009.

     Perhaps most striking is the October 23, 2008 Congressional testimony of Alan Greenspan, the former chairman of the Federal Reserve. Greenspan served in the position of the "nation's top banker" for over 18 years. He had at his disposal all of the research and all of the economic and financial expertise that anyone could hope for.

     Yet, in his testimony before the House Oversight Committee, he said "I still do not fully understand" why the markets broke down and that he was "in a state of shocked disbelief." He also acknowledged that he made a "mistake" in believing that banks would self-regulate enough to protect themselves from going bust.


     The world's foremost banker can get it wrong, but we can't?

Constitutional Protection


     There are good reasons that bankruptcy is mentioned in the United States Constitution. The founding fathers wanted to make sure that the federal congress established uniform laws throughout the country to help people who fell into unpayable debts.

     Our Constitution is all of four pages long (before the amendments). Look up images of it on the internet. The word "Bankruptcies" is on page two. Article 1, Section 8, Clause 4.

     The framers of the Constitution didn't know much about credit cards, vehicle loans, or payday advances. But they knew about debt, and all those things are just new forms of debt.

     The founding fathers knew that, for our country to be strong and prosperous, people needed to be able to take chances in developing new and better ways of getting work done (farming, building, defense, etc.), or just in "the pursuit of happiness" (see the Declaration of Independence).

     But when people take chances, they sometimes fail. Just like a baby learning to walk, if they're not failing (falling), then they're not trying. Bankruptcy gives people the freedom to try, knowing that if they fail, their financial lives are not over.

     Some people think that filing a bankruptcy case is somehow un-American. But since it is in the Constitution, it is therefore a Constitutional right, and thus uniquely American. America's success depends on it.

     And compassionate debt relief dates back to well before the late 1700's - consider the jubilee discussed in Deuteronomy 15:1-2.

     In summary, you should pay what you owe, unless or until you simply cannot do so anymore. At that point, the "right thing" to do is to look for help.

     For many people today, the only real help they can get is through the legally mandated, "fresh start" provided by bankruptcy law, and founded in our Constitution.

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Dale Orthner

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