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You are in debt. A lot of debt. You don’t know what to do, so you look into filing for bankruptcy. But you don’t want to file for bankruptcy. It hurts your credit, you think people will look down on you. And worse, you may even feel guilty about filing for bankruptcy.
Back in 2005 Congress changed the bankruptcy laws to make it more difficult for people to file chapter 7 bankruptcy. The changes were made based upon a perceived abuse of the bankruptcy system. I say perceived because as someone who works in the system nearly every day of his life, I just don’t see people trying to take advantage. Every now and again you see someone who has a scheme in place to try and beat the system (they aren’t successful, don’t try it), but in my experience it is very rare.
For the most part I meet with families that have suffered through a job loss or gigantic medical bills or some other life altering problem that has resulted in a lot of debt.
And even when I meet with those families that are facing total financial ruin and who absolutely need to file for bankruptcy – people for whom the bankruptcy system was made in the first place – still pause and delay their bankruptcy filing because they don’t believe it is the right thing to do.
And so they ask me: “I know I can file for bankruptcy, but should I? I want to do the right thing and this doesn’t feel right.” Most people simply want to pay their bills. They don’t others to suffer because they can’t meet their obligations. My clients want me to let them know that morally they are making the right decision.
So what do I tell them? Well, I file bankruptcy cases all day long so I am sure you can guess where I come down on the issue. But let me walk you through how I help people determine if filing bankruptcy is moral, or immoral.
Is there Bankruptcy in the Bible?
Many bankruptcy lawyers, when asked this question, will start by telling their clients “hey, don’t worry about it, there was even bankruptcy in the bible!” That is kind of true. There was debt forgiveness but it still doesn’t answer the question (at least I don’t think it does) of whether it is immoral to file bankruptcy.
Deuteronomy 15:1-2 provides that ever 7 years that your debts would be eliminated. This was done under the law, not because your creditors agreed to forgive a certain debt. While I don’t think this scripture answers the question of right or wrong when it comes to bankruptcy, I do think it shows that from the beginning of time all societies have seen the benefit of helping people start over. The benefit of allowing people who are burdened down with debt to obtain a release and not suffer through life with debts that cannot be paid.
What Would the World be Like Without Bankruptcy?
No one wants to file for bankruptcy. And if you are on the other end – the creditor end – bankruptcy is an extremely harsh penalty. After all, you loaned money or provided services in good faith that you would eventually be paid back. And now you won’t.
But if there were no bankruptcy, no chance to start over, how would that impact our society as a whole?
Without bankruptcy innovation would come to a standstill. Think about it; what entrepreneur would want to take the risk of incurring a bunch of debt of a project that may or may not work? The risk would be too high. Most businesses are not successful. And if you failed, without bankruptcy, you would be stuck with those debts for life, likely unable to ever recover financially.
But because there is a “do-over” button, entrepreneurs are willing to take risk and see if their idea or invention can take hold and help improve their life and many others.
Without bankruptcy, many great ideas would likely have never made it off the drafting table.
What I Tell My Clients
At the end of the day, here is what I tell my clients. Bankruptcy is not a place people generally want to be. It is typically not an experience most want to go through. But…if you find yourself in a pit of debt, it can save your life. It can give you something that many people on the brink of bankruptcy have lost…hope. Hope that you can start again and that things will not be bad for the rest of your life.
Bankruptcy is the law of our land. Debt forgiveness is a biblical principal and a principal of most societies. It is necessary to spur production and innovation.
And when it is all said and done, here is what it boils down to for me. There is a big difference between incurring debts that you intend to pay, but now can’t, and incurring debts that you have no intention of paying. Rare is the person I meet that has run up a bunch of credit card debt with the thought in mind that they will simply file for bankruptcy and escape all liability.
It is not immoral to be broke.