Can Bankruptcy be a Greater Good

[whichwaytogo47]

We are all taught that we should be honest and act with integrity.

But sometimes you can’t or shouldn’t pay a debt. It might be because you may be unable to pay the debt. The question is: what does it mean to be unable to pay a debt? Does it only mean someone that physically does not have the assets to sell to pay a debt OR does it mean / can it mean someone’s income that would be substantially negatively affected by using funds to pay off a debt, resulting in the person being destitute - for instance, someone that has $1M in their retirement account but has a $750,000 medical bill (aka this would drop a person’s retirement income from $4,000/mo to $1,000/mo) and thus cannot afford to pay off the debt, especially in terms of the diminished health of the individual.

In other words, is it more immoral to not pay a creditor if you have exempted assets or is it more immoral to be dependent from assistance on the taxpayer or your kids because you paid the debt?

 

[VonDerTann]

Your thread title is really unrelated to the questions you pose.

That said, the issues are complex. There’s a BIG distinction between personal and corporate Chapter 11 bankruptcies (in the latter businesses are trying to stay open and restructure debt) and even between the kinds of personal cases.

Knowing (as I believe I do) a great deal about the bankruptcy process, IMHO there are some problems with the bankruptcy system. That said, there IS a place for it, and the whole concept is largely biblical: It comes from the old testament concept of debt forgiveness every 7th year (ever considered why a bankruptcy discharge could only be granted every 7 years? now you know!).

 

[Beryllos]

If one operates within the laws of the land, including bankruptcy laws, I don’t think there is a moral issue. The laws concerning exemption are intended to leave the debtor enough of specific assets to live on, including what is needed in retirement. This is not immoral, as one’s necessary living assets (e.g., home, vehicle, tools of the trade) and living expenses are financial obligations, which puts them on a similar moral footing to debts owed to others.

 

[Montrose]

If one operates within the laws of the land, including bankruptcy laws, I don’t think there is a moral issue.

I don’t buy into the argument that because something is legal it must be moral.
Abortion is legal but I am sure you will agree it is certainly not moral.

 

[Beryllos]

Fine, but in my opinion, bankruptcy laws are moral because they are just.

To the OP’s point, if I have understood the OP’s question correctly, it is just and moral to exempt what is needed in order to live. Bankruptcy treats living expenses, including those in retirement, as a necessary financial obligation.

 

[Anesti33]

Beryllos:

If one operates within the laws of the land, including bankruptcy laws, I don’t think there is a moral issue.

I don’t buy into the argument that because something is legal it must be moral.
Abortion is legal but I am sure you will agree it is certainly not moral.

Here’s the corollary, which is better: if an act is illegal, then it is immoral.

Even this is not 100% accurate, because we need to take into account unjust laws and civil disobedience.

 

[farronwolf]

I have some serious problems with your scenario.

If you have 1mil in a retirement account, you would most likely be employed in a job that has insurance or you earn enough to provide insurance for your medical care, so there would be no reason to have a 750k medical bill.

The only thing people need to live is food, shelter and clothing. Beyond that, it is what folks want to have.

Just about every person I know that has filed bankruptcy or has had forgiveness of debt, has done so after poor management of their resources. Mainly money.

Just because a law says you can get out of your debts doesn’t mean that it is right to use it.

 

[Beryllos]

Just because a law says you can get out of your debts doesn’t mean that it is right to use it.

Well, can it sometimes be right?

 

[farronwolf]

Well, can it sometimes be right?

Legally or morally?

Legally it happens all the time. Morally it happens way, way to often.

If the bankruptcy courts used the same standards for living expenses that the IRS uses when you have debt to the gov, it would be much closer to the moral side than it is currently.

 

[JimG]

There is nothing wrong with filing for bankruptcy if the circumstances warrant it. But I have some some cases where people have filed b/r almost as a matter of course two or three times after seven years. Still, it makes me uncomfortable to consider using it. Shortly after I married my wife had a serious medical emergency and was in the hospital for a month. I had just changed jobs and neither of us had medical insurance. The hospital and and doctor bills were not as outrageous as they are today, but still high. We paid off both the hospital and the doctors by paying them monthly over the course of several years. So bankruptcy was not necessary.

 

[whichwaytogo47]

I don’t buy into the argument that because something is legal it must be moral.

Agreed. I was asking are what are the moral responsibilities of the individual(s) considering bankruptcy?

 

[whichwaytogo47]

If the bankruptcy courts used the same standards for living expenses that the IRS uses when you have debt to the gov, it would be much closer to the moral side than it is currently.

It also would be a windfall for creditors.

The hospital and and doctor bills were not as outrageous as they are today, but still high. We paid off both the hospital and the doctors by paying them monthly over the course of several years. So bankruptcy was not necessary.

+1 That definitely is great that you were able to work something out. But today, you might have a huge hospital bill (even with insurance) that could decimate your retirement and you don’t have the time to replace it like if you were 30. The standards of reasonable and accurate billing just don’t exist today.

I see no moral culpability for a debtor if a non-profit hospital negotiates in bad faith.

 

[farronwolf]

It also would be a windfall for creditors.

How is a creditor being paid what is owed to them a windfall?

 

[whichwaytogo47]

How is a creditor being paid what is owed to them a windfall?

Because creditors are compensated for risk by being allowed to charge high interest. If you maintain that a borrower must remain subject to the high interest without being able to discharge the debt in bankruptcy, that is unjust usury as the creditors benefit from the reward without being subject to the risk they agreed to accept.

 

[VonDerTann]

The truly huge medical bills IMHO are generated when the hospital puts rates unreasonably high because the person is uninsured - but that’s beyond the scope of this debate.

Having spent many years working in the bankruptcy field, my opinion is that personal bankruptcy is in fact too easy - maybe a bit less so than pre-reform, but still too easy. The reformers talked to too many professors and not enough practitioners, and the reforms can sometimes be worked around. IMHO the real reform needed is to make everyone file a chapter 13 and pay back some portion of the debt they incurred - even if it’s just 10 cents on the dollar.

What you subsidize, you encourage. Bankruptcy does in fact subsidize some bad spending.

When I was a kid my mother got cancer and died. After she got sick my dads little work HMO retroactively kicked her out of coverage. I never knew why as a kid my parents had a lousy car and I ate state subsidized lunches - till I learned my dad slowly paid off like 200k of medical bills without bankruptcy. I have exceeding little toleration for millennials who overspent on credit cards and want to file bankruptcy.

 

[whichwaytogo47]

The truly huge medical bills IMHO are generated when the hospital puts rates unreasonably high because the person is uninsured - but that’s beyond the scope of this debate.

Actually that’s where I was going with this post.

I never knew why as a kid my parents had a lousy car and I ate state subsidized lunches - till I learned my dad slowly paid off like 200k of medical bills without bankruptcy. I have exceeding little toleration for millennials who overspent on credit cards and want to file bankruptcy.

Your dad sounds like an awesome man.

 

[farronwolf]

I didn’t say IRS definitions of poverty. Never said anything about poverty. I said collection standards.

For example, in the county that I live in IRS allows for a family of 3:

Auto ownership and operation for 2 vehicles 1620
Housing 1590
Out of pocket medical 168
Food, clothing ect 1433

This total of 4,811 is the maximum amount of expenses the IRS will allow a family of 3. Any amounts earned above that goes to the IRS for the debt.

If you don’t have expenses that total to their maximum, anything above your expenses go to the IRS for the debt.

 

[whichwaytogo47]

Interesting perspective. I thought they were lower than this. Thanks for teaching me.

 

[farronwolf]

Ok, but don’t stop paying your taxes and adjust your income so you don’t have to pay off the IRS debt.

 

[whichwaytogo47]

Ok, but don’t stop paying your taxes and adjust your income so you don’t have to pay off the IRS debt.

My wife is right. I just added $200/pay period to my IRS since they’re not deducting my SS and they might ask for it back.

The good thing about marriage is that I’m not alone to figure this out and we can try to figure it out together.

I hope I never need to file for bankruptcy. But I even more hope to not be childless. Just going to keep putting the 5% + 5% match into the 401k until I get past the childcare.