All too often, from my parents' perspective, someone owing a significant balance on a refrigerator, for example, would file bankruptcy. The fridge would stay with the customer and the bad debt would stay with us. I know now that if mom and dad could have afforded an attorney, which they couldn't, they might have been able to get the merchandise back at least. As a result of that experience I felt that bankruptcy was wrong.
After practicing law for a few years in a very competitive legal community I decided to include bankruptcy in my practice because potential clients had to go out of town to find a bankruptcy attorney. I have now been practicing in the area for 30 years and have learned that at least 95% of my bankruptcy clients were financially responsible people who had bad things happen in their lives such as loss of employment, medical issues, divorce and business failures. Most often my clients had spent months or years trying to climb out of their financial hole. Many had experienced physical problems, psychological problems and family problems from the strain of not being able to survive on a month to month basis. They didn't want to file bankruptcy and felt ashamed that they were in that position.
History is replete with stories about the persecution of debtors. In ancient Rome debtors could be enslaved or executed. If executed their body parts might be distributed among their creditors. Nice thought. England had debtors' prisons where you were held until your death unless your friends or relatives would stepped forward and paid off your debts.
The first reference to something akin to bankruptcy may have been in the Bible in Deuteronomy where it states that creditors should forgive the debts owed to them every 7 years. In 1705 Queen Anne of England may have passed the first bankruptcy law providing debtors a release from their debts. Although debtors could be flogged under American colonial laws, our Constitution provided that the federal government had the authority to pass uniform laws governing bankruptcy. During the 1800's bankruptcy laws slowly evolved toward what the are today.
Bankruptcy relief is a recognition that society as a whole suffers when people can't escape debt that they are unable to pay despite their best efforts. As previously mentioned this sometimes desperate state can lead to health problems, mental problems, disintegration of the family, lethargy and a lack of productivity, all of which can cost all of us more money than releasing people from their debts.
The law doesn't require people to loan money to others, so bankruptcy puts the onus on creditors to lend money responsibly. If they choose to make a loan they know that they may not get their money back and should run their business accordingly. When I graduated from law school I wanted to get a credit card because it was necessary to rent a room or obtain some forms of transportation. I had to meet with a loan officer at a bank and even then had to have a cosigner to be approved. Contrast that with a few years ago when my teenage children would receive credit card offers in the mail for a $10,000 line of credit if they simply signed an enclosed card and returned it.
For years major credit card companies continued this practice knowing that a large amount of the debt would not be repaid because the amount of money they earned from interest more than offset the loss.
I know bankruptcy would feel wrong to you as an individual if you loaned a friend or relative money and they dissed you by filing bankruptcy. I know the feeling is the same when a small business owner struggling to survive gets hit with a significant bankruptcy loss. However, the greatest impact from bankruptcy is on companies that have weighed the risk and decided they can still make a profit on their loans.
Bankruptcy also feels wrong to most of the people that have to endure it. However, if it is the only way you can continue to survive or support your loved ones it is better than the alternative. Heart surgery, chemotherapy and radiation treatments aren't pleasant either but you may need them to survive. I have seen so many lives changed for the better as a result of bankrutpcy that I know it is not wrong most of the time. May the fates be with you and your budget always remain in the black.