Apr 072010

Let me start with a controversial statement. Going bankrupt is as American as apple pie.

Take for example a blog that found its way into my reader, Debt Kid. To paraphrase his story, he ran up an official crapload of debt, (over $300,000 in debt before the guy had even hit his mid 20s) sold his house, declared bankruptcy and has since turned the corner towards working to pay off the debt the bankruptcy didn’t eliminate. He’s done a nice job turning his life around and we should all congratulate him on it.

Let’s focus on the bankruptcy part. The amount of the bankruptcy is unimportant; for the sake of this discussion we’re much more concerned with the process. Say Debt Kid has a moderately successful few years and in 2014 is in the financial position to be able to start making payments on the written off debt from bankruptcy. Why shouldn’t he have to do it? Why are there no provisions put into place to protect the lenders?

I don’t think anybody wants to declare bankruptcy. It’s a pretty humiliating thing to go through. The whole process is a sign that a person can’t manage their finances and is pretty much a failure. Whether the game is Wheel of Fortune or Monopoly, bankruptcy isn’t the desired outcome and real life isn’t any different. Yet life is very possible without credit.

There are plenty of people who don’t have bank accounts, or credit cards, or mortgages or any credit at all, and they still exist. While bankruptcy is a giant pain in the you know what, someone can still live a pretty normal life after going through the process. And all things considered, it’s a pretty darn effective way of eliminating your debts.

I’m not going to pretend to know what the bankruptcy laws are in your state or province. I do know that typically creditors can’t touch any item bought with unsecured debt when someone throws in the towel. I also know that typically you’re allowed to keep your house unless there’s a large amount of equity there. Why is the process so easy? Why are certain assets protected?

As humans we typically take the path of least resistance, no matter what we face in life. In large indebtedness, bankruptcy is the obvious solution. Yet what are we saying about ourselves as a society when rules exist to make large amounts of debt go away? What kind of message are we giving people that they’re in no way responsible for that debt once bankruptcy is finalized?

I think bankruptcy is important to give people a fresh start. If people use that fresh start to make positive changes like Debt Kid did, then the system is doing it’s job. I just don’t think that debt should be forgiven forever. If someone incurs it, they should pay it back, providing they acquire the means to pay for it.

Then hopefully personal responsibility becomes as American as apple pie.

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