For many ordinary people, declaring bankruptcy is a way to escape from crushing debt often caused by circumstances beyond their control, like health care bills, and start a new life, though it is never an easy out. In addition, they are made to feel ashamed for doing so. In 2005, the credit card companies lobbied for a new law that made made it much harder for individuals to declare bankruptcy. As a then senator, Joe Biden fought in favor of the new law, no doubt because his home state of Delaware is home to many credit card companies.
In yesterday’s episode of Last Week Tonight, John Oliver describes how the current bankruptcy laws are confusing and hard to maneuver and of a new proposal to simplify it. Of course Republicans will filibuster it.
Haven’t watched it yet. My old simple proposal is thus: Anyone can declare complete bankruptcy at any time to be completely absolved of all debts, public and private, without negative consequences of any kind except for complete loss of current assets and reduced social standing, credit rating, etc. In fact, I would make my proposal into a constitutional amendment to be in the expanded bill of rights. It’s that important to me.
@1 GerrardOfTitanServer: Bankruptcy is the sort of thing that does require safeguards. Otherwise the wealthy and grifters would play games with the system. One family member takes all of the debt in the family and gives all of their assets to other members then declares bankruptcy, leaving everybody else in the clear. Cycle through family members every couple of years with a family where members are not legally married and it would be hard to even detect.
To JM
Of course. However, my first gut reaction is that you have misidentified the problem. The problem is allowing large untaxed gifts. This is a huge hole in the bankruptcy system that I propose, and it’s also a huge hole in the inheritance tax system that we should have. Regardless of my proposed bankruptcy policy, this hole must be closed for an effective inheritance tax system.
Another net positive of my approach is that it ought to cut down on predatory lending if the lender knows that the loan recipient can just declare bankruptcy at any time.
On the other hand, it would make it harder for poor people to get loans. I think I’m ok with that, but I admit to be a complete novice in this regard and I’m definitely open to critique. Thanks for giving me some.
Also to JM.
Thinking on it more, the answer seems easy and obvious. If you have a mortgage on a house, you cannot just gift the house to someone else without also “gifting” financial responsibility for the loan. That basically fixes the entire problem that you suggested. There’s a small remaining problem, but the small remaining problem only happens with certain kinds of loaning practices, such as credit cards. However, as I already said, I think I’d be totes ok with the consequences on credit cards from an easy unlimited bankruptcy law because I think that credit card practices are often predatory. Thus, if the net result of my bankruptcy policy is that less people get credit card offers, I think that would be a good outcome. And again, I’m a complete novice here, so it’s easy for me to believe that I’m overlooking stuff that is important.
“harder for poor people to get loans. I think I’m ok with that, but I admit to be a complete novice in this regard”
If poor people are unable to get loans, it means they cannot establish a credit history. Without a credit history, it’s extremely difficult to rent an apartment. Lack of access to credit keeps people homeless. And homelessness is a life-shortening experience. I am not in favor of anything that makes it harder for poor people to climb out of the hole that they are in.
To Numenaster
Again, my gut reaction is to say: Are you saying that there is upwards class mobility in America right now? It seems like you are assuming that. I don’t think that there is significant upwards mobility, and I think the facts support me here. What I see is a bunch of poor people trying to pursue the American dream, and they become victims to predatory loan sharks, especially the pay-day loan business.
I am not a capitalist, and the notion that “people can pull themselves up by their bootstraps by going into debt” just seems so wrong to me. And alien. I don’t understand how that is your first reaction.
My first reaction would be for more government handouts. More taxes on the rich. More financial support for education and job training. More government financial support for poor homebuyers in the forms of direct cash subsidies (as opposed to unwise mandated low-interest rate loans, which was a major cause of the subprime lending market collapse). Hell, let’s do a guaranteed minimum income scheme.
Building a society where everyone is in debt seems to me to be a fundamentally flawed adventure that can only lead to misery for the majority and the enrichment of the minority.