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Is it Immoral to File a Bankruptcy?

By Joseph McDaniel, Esq.

Well, I've heard some people say that the increase in bankruptcy cases since the Depression hit is an indication that the American People have lost their moral fiber.

On the other hand, there are massive increases and decreases in the numbers of bankruptcy cases that are filed every year.

In 2006, for instance, there was a record reduction in the number of bankruptcy cases filed, as compared with 2005.

Does that mean that Americans developed massive additional moral fiber in 2006?

That's a sort of silly argument, but you're trapped into that position if you say that an increase in filings demonstrates a decrease in moral quality.


WHO IN THEIR RIGHT MIND WOULD ARGUE THAT FILING BANKRUPTCY IS IMMORAL?

Well, in my experience, there is only two tiny groups of people who take that position; young people with rich grandparents and jobs that pay them more than the median income (early success stories) and older folks who have been lucky so far.

On the other hand, he who lives the longest sees the most.

And putting it another way, into every life a little rain must fall.

So people who think bankruptcy is a sin (and note: it is not. See discussions of the Jubilee Year in the Old Testament) go on thinking that bankruptcy is a sin until their beloved son has to file, or their sister.

Or until they get downsized. Or rightsized. Or until they have a heart attack or stroke.

And then they discover that sometimes, you gotta do what you gotta do, and that spells bankruptcy.


BUT FILING A BANKRUPTCY IS LIKE BREAKING A PROMISE TO PAY MY DEBTS! 

Exactly!

Let us suppose you promised your beloved granddaughter that you were going to take her to the County Fair, and walk with her the whole long way, through the exhibits and the rides and the food court, and you also promised that you would buy her cotton candy and win her a very fluffy stuffed unicorn.

Let us further suppose that you did something crazy or stupid or excessively athletic, like turning around and bending over to pick up a sock, and that your sacroiliac joint has strongly objected to your friskiness; that is, you are paralyzed with agony and require help to totter to the bathroom.

Short version: your back is out, bad!!!!

Now, if little Agnes decides to sue you for breach of your promise to take her to the fair, should she win?

In the Court of Morality, with any reasonable person as the Judge, of course not!

Because in some areas of law and morality, impossibility is a complete defense!


IS IT IMMORAL TO FILE A BANKRUPTCY IF I CAN'T EVER MAKE ENOUGH TO PAY?

Well, the drafters of the 1979 Bankruptcy Code (and one of them is a friend of mine, and a brilliant lawyer, and a fine and wonderful person) designed it to provide relief to an honest debtor with overwhelming debt.

If you have twenty-five thousand dollars worth of credit card debt, and make a combined hundred and ninety thousand a year in income, and your house has two hundred thousand dollars in equity, and your cars are paid for, you have some debt, but it doesn't look overwhelming.

But now that your job has been outsourced, and your total yearly income is twenty thousand dollars, it is going to be impossible for you to make the same sort of payments that were easy for you previously.

Or if you had seven investment houses, because you worked very hard, and you saved every penny for down-payments, and you scrimped and saved to get those investment properties, and now your renters have left, and rental payments have dropped so that you can't make the underlying mortgage payments, and when the trustee's sales hit, you'll have three and a half million dollars of deficiency judgment to pay, you now have overwhelming debt!

Or if you have struggled with a divorce, depression, or substance abuse, your economic life and your ability to pay debts has almost certainly been compromised, and a bankruptcy might be a good economic choice so you can get back on your feet.

Or if your dental practice, medical practice, auto body shop, hair salon, restaurant or nail salon has experienced a fifty-per-cent reduction in business with no corresponding reduction in overhead, you may have overwhelming debt and get to file a Bankruptcy!


INTO EVERY LIFE SOME RAIN MUST FALL! BANKRUPTCY GROWS AFTER THE RAIN!

For thirty years I've helped people and businesses with debt ranging from ten thousand dollars to seventy million dollars with bankruptcy, and I am proud that so many of my clients now enjoy their life after bankruptcy, and can again be productive members of society!

Full post as published by Arizona Bankruptcy Attorney Blog on January 11, 2011 (boomark / email).