It’s Not a Bug, It’s a Feature: Why I don’t Think it’s Wrong to Free Yourself from Debt
Some folks don’t want to file bankruptcy or pursue other legal options for debt relief because they think it’s wrong not to pay back money they owe. They see it as a moral failing, or just as admitting defeat in their personal game of Monopoly.* I don’t see it that way. For one thing, bankruptcy is enshrined in the US Constitution. The framers knew that in an economic system that relies on credit to keep things moving, the ability to discharge debt in some situations is necessary to avoid blocking up the system. When interpreting the Constitution, judges and scholars often look to the Federalist Papers to explain what the framers meant by certain terms, sections, or clauses. Of the 85 Federalist Papers only one mentions the Bankruptcy Clause, US Const. Art. 1, S. 8, cl. 4. In Federalist No. 42, James Madison wrote:
The power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce, and will prevent so many frauds where the parties or their property may lie or be removed into different States, that the expediency of it seems not likely to be drawn into question.
(emphasis added). Madison, one of the framers of the Constitution, assumed that bankruptcy was so baked-in to the way the US economy was run, that no one would object to it being included in our nation’s founding document. Given the extraordinary amount of argument many other constitutional provisions received, it is remarkable that everyone involved in writing the thing more or less agreed - judging from the fact that there are no more Federalists about it - that bankruptcies were necessary.
Americans are born into a consumer- and corporate-capitalist economy that relies on average people spending as much as they can to keep the big companies running. Lending really is necessary for our economy to run. To drastically oversimplify, banks loan out deposited cash over and over, letting one dollar in savings purchase a whole lot of goods and services before it’s withdrawn by the depositor. For our form of market capitalism, this is a good thing. It allows businesses to use money that would otherwise not be moving to buy capital or inventory, pay their workers, and make more money. It greases the wheels so the economy can move and, hopefully, grow.
Consumer loans are different because, for the most part, they aren’t used to produce more money. Most people use them to buy things they need or want. Banks, credit card companies, and the health insurance industry all make their profits by making it difficult to live without borrowing money. So do the large retailers we buy our clothes and food from; along with relying on credit cards for making sales, they offer their own cards so you can chain yourself to them through “loyalty” and debt. Plus, our very effective marketing industry convinces us to spend even more to buy things it says we need. Together, they both subtly and explicitly urge us to buy more, buy on credit, give them money any way you can.
Medical bills aren’t technically loans, but they are another major source of unpayable debt for Americans. There’s a lot more than I want to go into here (maybe I’ll write another rambling blog post about it) but between the insurance and pharmaceutical companies, the US health care system is broken. The Affordable Care Act attempted to fix it a bit, but many are still uninsured and even more underinsured. A catastrophic health emergency, or even what seems like a health hiccup, could end up with you receiving a massive bill. If you had insurance and still ended up owing more than you can afford, it’s a product of how the players in the industry have set things up. If you didn’t have any insurance, I’m glad you survived, and the system’s reliance on employer-provided health care is probably at fault. But health care isn’t optional. It isn’t a luxury. When you are sick, you should go to the doctor. Forcing average Americans into debt for life-saving procedures isn’t right. Allowing that debt to be eliminated in bankruptcy doesn’t make up for it, but it can help.
It’s only fair that if you took the word of the financial powers-that-be and lived on credit - literally lived, if you owe a giant bill for life-saving medical procedures - you should be able to escape that debt when you can’t pay it any longer. Look at it this way; when too many people run out of credit and can’t buy any more stuff because their wages are all going to pay their credit card bills, the whole economy grinds to a halt. That’s not good for us, but it’s also not great for them. Put simply, they can’t make money if we can’t spend it. Of course, no creditor likes having its claims disappear in a bankruptcy filing, and large industries, the credit card lobby in particular, often try to restrict who can file and how.*** I would guess, though, that they collectively understand that bankruptcy is a necessary feature of the economy. Without it, if they want to keep pushing high interest rate credit cards and car loans, they will eventually have no one to sell things to.
If you are inclined toward the Abrahamic (Jewish/Christian/Muslim) sort of religion,** it’s worth noting that pre-Islam and -Christianity Jewish law (which both of the former were largely based on) required the forgiveness of debts on a regular basis, an event called “jubilee.” The word originally meant either a “shout of joy” or a “trumpet blast of liberty.” At the end of every seventh year (or every 49th, I guess there’s some scholarly disagreement), all debts had to be forgiven and all slaves freed. Even ancient civilizations recognized that it is not right for a person to be eternally bound to their debts.
Maybe it seems obvious and self-serving for a bankruptcy lawyer to wax eloquent about why he thinks you shouldn’t feel bad about getting rid of debt. One of the reasons I love my job, though, is because I get to help people live better. And I do it using the very system that has preyed on them, sucking out their hard-earned money like a parasite. I enjoy pulling the levers of the system that hurts so many to help alleviate that pain while sticking it to predatory institutions and making a bit of a living myself.
*Norsted Law, LLC does not endorse playing Monopoly. Seriously, there are much better games out there. Don’t do it.
**Yeah yeah, someone went to a lot of Sunday School. Don’t hold it against me.
***I will be writing a post about the “Bankruptcy Abuse Prevention and Consumer Protection Act.” Suffice to say, the credit card companies got exactly what they wanted from Congress.