Over the years, the process of declaring bankruptcy has become incredibly simple. Because of this change, the number of people declaring bankruptcy is at an all time high. Today, bankruptcy is a common thing among companies and individuals alike. The American bankruptcy law allows people to avoid paying their debts by offering the debtors a discharge without a harsh consequence. By not having repercussions for their actions, bankruptcy filers often plan future bankruptcies, allowing them to steal even more money from creditors with no punishment. There are 13 different chapters in the bankruptcy system with the principal chapters being 7,11, and 13. You can only file for bankruptcy under these three chapters, the others are there to explain how the system works. Under Chapter 7, a persons debts are wiped away while under chapters 11 and 13, debts are frozen while the debtor figures out a way to repay them. The people filing Chapter 7 are stealing money from creditors who are trying to help them. It is ones moral duty to pay back his debts and one should be disgraced and embarrassed if they borrowed money they cannot pay back. Over 1,400,000 people filed for bankruptcy in 1998 under Chapter 7, Chapter 11, and Chapter 13. 75% of them were under Chapter 7, leaving retailers, bankers, and credit-card companies with $40 billion in unpaid debts (Kopecki 5) (Pomykala 16). The use of different reforms could cut down on the number of Chapter 7 filings and put responsibility back on the debtor. Declaring Chapter 7 bankruptcy is ethically and morally wrong and through different reforms this current right would be considered a crime.
Bankruptcy was slowly transformed through history from being a crime committed by debtors into a social welfare program. In the past, bankruptcy offenders were severely punished. Before the mid-19th century, bankruptcy was a crime (Pomykala 16). There were many ways to punish those who committed this heinous act. The Pennsylvania Bankruptcy Act of 1785 allowed the flogging of these offenders while their ear was nailed to a post and afterwards the ear was cut off. Similar to Hester Prynnes punishment of wearing a scarlet A on her chest for adultery, people who committed the act of bankruptcy were branded on the thumb with a T for thief (Pomykala 17). Various punishments like these served as a warning to future violators. By punishing those who declared bankruptcy, it gave further incentives to avoid getting lost in debt. The death penalty for many of these offenders was replaced with a maximum of 10 years in prison under the 1800 Bankruptcy Act. Slowly through the years the prison sentences were shortened and then abolished. It became easier to declare bankruptcy and the stigma behind it is now gone.
Currently, there are essentially no punishments for bankruptcy filers. Bankruptcy endows debtors the inalienable legal right to discharge debts without payment (Pomykala). Some claim there are consequences for filing for bankruptcy. The most apparent disadvantage of filing for bankruptcy protection is the serious damage inflicted on the debtors credit rating. A bankruptcy filing can remain on an individuals credit report for 10 years (Jasper 3). There are hundreds of websites that will give people who have declared bankruptcy credit cards and loans. File bankruptcy and keep it out of your credit report!” (700Law.com). These websites specialize in getting people who have declared bankruptcy new credit cards and loans. They show one how to wipe ones debts away and how to keep those debts off ones record. If the credit report did stay on ones record for 10 years it would not matter because there are so many companies still willing to give them credit. Even if you’ve had a bankruptcy or foreclosure in the past, we’ll work hard to help you get the cash you need (Ameriquest Mortgage). The only real punishment after filing Chapter 7 or Chapter 13 is that there is a 6 year waiting period before they can file again, but, Once the forbidden fruit is bitten, many bankrupts come back to discharge debts again. (Pomykala 18)
Chapter 7 bankruptcy involves liquidation of the debtors assets (Pearce 16). Once one files, one would think that all of their assets would be taken away; this is not the case. There is a long list of items called exempt property, which include such things as motor vehicles, jewelry, and property (Elias 1/2). However, these items are not taken from the filer and sold to pay off their debts, they get to keep these things. There is often no estate to liquidate and if there is a house, it is often considered exempt property. The Bankruptcy Codes approach to property exemptions is one of the most heavily criticized areas of bankruptcy law. From the debtors prospective, very broad exemptions make Chapter 7 attractive. Even individuals with slight financial problems may find bankruptcy hard to resist if they can keep significant property and still receive full discharge of their debts (Hanson). In 1996 Doctor Hashemi took his family on a six week European vacation costing $60,000. He charged it to his American Express and when he got back from his lovely vacation he declared bankruptcy. He kept his home and all his assets, but the $60,000 was wiped clean. In another case, Mr. Uddin amassed $170,500 in unsecured debt over six months for airline tickets, consumer electronics, perfume, cosmetics, and gambling trips to Atlantic City where he lost $60,000. He got $50,000 in cash advances on his credit card, which he claims he lent to a friend whom defrauded him and disappeared. He asked the bankruptcy court to abolish his debts and they did (Hanson 30). A person who commits such heinous acts should be thrown in jail, not have their debts dissolved.
The creditors are the ones paying for all of this deceitful action. Losing more than $40 billion dollars, creditors are footing the bill for irresponsible spending (Warner 13). Their job is to make spending money easy by not having to carry around cash and by loaning consumers a little money when they just need that extra cash to buy a new home or car. Instead of being thanked for their help, creditors are being stolen from and defrauded and they are paying for it, not the consumer. More Americans file for bankruptcy than graduate college each year (Feltman). Ninety seven percent of bankruptcy filings are under Chapter 7 and without reform these numbers are just going to grow.
Many people claim it is their right to declare bankruptcy. By the number of people filing one can tell they are exercising that right. There are 1.5 million people in America who claim they do not have enough money to pay back their debts (Kopecki 5). Is it right to borrow money and not pay it back? Is it right for creditors to pay for the things the consumer buys? If one cannot afford to pay for something, one should not buy it.
If a bank lends a man a thousand dollars and he knows he will not get punished if he does not pay back the money, why should he return it? It is his moral duty to pay back the money he has borrowed and if he does not, how would it be any different than if he went into the bank and stole the thousand dollars? The difference is that if he stole the money he would be put in jail, but if he borrows it and declares bankruptcy, there is absolutely no punishment and he does not have to pay back the bank. People should feel disgusted with themselves if they commit such an act. If they do not have the morals to repay the money, they should be put in jail as if they had stolen the money because it really is no different.
People claiming bankruptcy is a right use the point that there is more bankruptcy filings because Americans debts have become greater over the years. On the contrary, there has not been much of a change in debt in the past twenty years. So why is there a 300 percent increase in filings since 1980 if the debt is relatively the same? (Irons). Bankruptcy laws give a second chance to people who were simply unlucky and fell on hard times and can no longer repay their loans. The thought is that if they could repay, they would, and declaring bankruptcy is therefore only a last option when everything else fails (Irons). The number of filings alone disproves this theory. Since there is the same amount of debt, there should be the same about of filings, but the number of filings has gone up drastically. It is true that after one files for bankruptcy they get a second chance, but why do they deserve it? Even if a person has fallen on hard times it is their responsibility to pay back their debts, not someone elses.
The amount of time between declaring bankruptcy and having a clear record should be extended beyond six years. All assets should be taken from the person including their car and home in order to repay their debts. If there were harsher consequences for not paying back ones debts, then the number of filings would undoubtedly reduce. If not thrown in jail, they should have to pay back their debts within a certain amount of years. If they still cannot pay them back, they should be thrown in jail as if they stole the money directly from the place they borrowed from.
In the past, bankruptcy was considered a crime and the perpetrators were punished. Their social standing was degraded and their peers looked down upon them. Declaring bankruptcy has currently lost its stigma and has become socially acceptable. It is just another form of stealing except the people who file are not arrested or punished. Creditors lose billions each year because of these people who claim they cannot pay back their debts. Through reforms, the number of filings would be cut down and punishment for these actions would be greater. Filing Chapter 7 bankruptcy is an easy way out of paying ones debts and until there is a harsher punishment for these actions, the numbers will continue to grow.
700Law.com. Bankruptcy Online 12 Dec 2001.
Ameriquest Mortgage. Home Mortgage Loans 12 Dec. 2001.
Elias, Albin Renauer, and Robin Leonard. How to File for CHAPTER 7
BANKRUPTCY. Berkeley: Nolo 1999.
Feltman, Peter. Bankruptcy Bill Closer to Enactment. Bankruptcy Debate Continues 12
Hanson, Randall K., A new chapter in bankruptcy reform. Journal of Accountancy
Irons, John S., Private Debt: Two Views on Debt. About.com 12 Dec 2001
Jasper, Margaret C., Bankruptcy Law for the Individual Debtor. New York: Oceana
Kopecki, Dawn, More American Debtors Turn to Chapters 7 & 13. (bankruptcy
law makes discharging debt easy). Insight on the News 22 Mar. 1999.
Pearce, John A. II, Samuel A. DiLullo, When a strategic plan includes
bankruptcy. Business Horizons Sept.-Oct. 1998.
Pomykala, Joseph S., BANKRUPTCY LAWS: The Need for Reform.
USA Today Nov. 1999
Pomykala, Joseph. BANKRUPTCY REFORM: Principals and Guidelines (Revised
Edition) Regulation Vol. 20, No. 4, 1997.
Warner, David, Bills seek to slow bankruptcy filings. (Congress introduces
legislation to make bankruptcy laws more strict). Nation’s Business Mar. 1999