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Why People Should Be Allowed to Walk Away from Their Debts

posted by Mechele Dickerson

Professor Heidi M. Hurd, a law and philosophy professor at the University of Illinois, ended the conference by discussing first principles in The Jurisprudence of Bankruptcy. Why should we forgive people who break contracts and harm others?

Professor Hurd rejects the typical paternalistic, utilitarian, and other rights-based justifications for allowing people to walk away from their debts.  For example, she recognizes that the rehabilitationist nature of bankruptcy can possibly be justified based on theories of distributive justice (which seeks to move things from the haves to the have nots), though she ultimate rejects this theory.  Her paper recognizes that rejecting these theories might result in the financial acquittal of the guilty (for example, credit card issuers who are morally implicit in causing debtors to incur so much debt) and the punishment of the innocent.

To Professor Hurd, debt forgiveness is about personal virtue – not the virtue of individual debtors or creditors, but the virtue of citizens of a wealthy society.  Allowing bankruptcy to exist, she argues, is required by persons of good character who live in a world with others who have varying talents and resources.  As members of a virtuous and wealthy society, we should be willing to bear the losses of our fellow citizens because doing so constitutes an essential component of being a person of good character.  The existence of a bankruptcy system helps each of us realize our individual virtues in the collective.

Professor Curtis Bridgeman, a law professor at Florida State University, challenges Professor Hurd’s first principles. He questioned whether we have individual moral obligations to forgive debts, especially if the consumer might be able to repay their debts from future earnings. He thinks that debtors have obligations to their creditors and only they – not us as individuals collectively – cannot forgive debtors.

Professor Bridgeman conceded that creditors aren’t the only ones who have an interest in the debtor’s bankruptcy, since states also have an interest in the system. He argues, though, that the state’s interest would give individuals the right to collectively decide only whether debtors could discharge tax debts, since those debts are the ones ostensibly owed to all of us.

Comments

My father passed away in 2002. At the time, he had sold his house and his car and was in assisted living paid for by insurance. His total income from Social Security and a small pension was $1100 a month. At the time of his death he had an unbelievable $24,000 in credit card debt - more than his assets.

But it was even worse than that. Because he was still paying his credit cards on time and above minimum, they had continued to raise his credit limits. A man with a $13,000 a year income had more than $125,000 in approved revolving credit limits!!!

We paid his medical bills and what little we could of other bills and informed the rest of the credit card companies that they were SOL. Wells Fargo in particular got pretty grumpy with us, sending dunning letters every two weeks. I finally wrote them asking what on earth had possessed them to give an ailing old man with virtually no assets and such low income a credit limit of $32,000? Had they totally abandoned all standards of due diligence and credit screening? Or did they just succumb to the temptation to fleece an elderly customer of every last nickel he had?

They quit bothering me.

My boyfriend and I have an affordable home that we can pay for, but our neighborhood has gone to hell and no one in there right mind, in this market, will buy our home. My children need to live in a better neighborhood and my aunt has just bought a beautiful house for my cousin to rent from her…..it turns out she can’t rent it and we can move in a nice home with a wonderful lease. I know that the foreclosure rate is sky high ! I wonder, what would be the big deal if we just walked away and moved on with our life’s? My mother, that has always taught me to do the right thing, is telling me to walk too! I know we have an obligation to the bank but where is everyone else’s morals in this situation? People are foreclosing left and right! I drove down the street the other day and saw 5 houses for sale that said, “BANK OWNED.” Did the government trap people with the low rates and high loan approvals? What should I do? If I walk, I give my kids a better life!! If I stay, I am holding up to the promise I made the bank!! What is ethical here? How bad will it ruin my credit if everyone is doing it!!

Any time you justify your actions by saying "everyone is doing it" a red flag should go up.

sarah wrote:
Any time you justify your actions by saying "everyone is doing it" a red flag should go up.

Amen. Moral law is for the individual, it has nothing to do with what other people are doing. You're being tempted by the fact that because other people are doing it, you'd feel less guilty about partaking of the act, but it makes you no less guilty.

The red flag should be up because you agreed to the conditions of your purchase, and were fine with it until something better came along.

This is remarkably similar to the reason people cite for divorce.

I need to disagree with Sarah: While it is indeed true that the PERSON does agree to the loan and thus certain terms for a given item/property, this does not happen in a vacuum.

The entire 'problem' with the current economy is that it was based on a hoax, willingly promulgated by banks and lenders, and further deregulated and fully supported by our own Federal government. The hoax is this:

NOTHING 'goes up in value' forever. There is a limit to real and perceived value, period, in any time, place, and economy. When these limits are not recognized, then the economy in question experiences both a 'mania' in perceived value and a 'bubble' in real value.

Second, giving loans to millions of consumers who are at the absolute fringe-edge of 'financial responsibility' is not only an amoral business practice, it is practically suicidal for a loan origination company -- and yet loan originators in all 50 states we doing so for YEARS.

So you see, this current 'economy' and the resultant 'crisis' are both based on outright lies, and those lies were created and supported by lenders whose only motive was to "sell the debt" to someone else as quickly as possible, in some cases before the ink was even dry on the buyer's closing contract.

Therefore, the terms which people THOUGHT they were agreeing to was also a lie. Therefore, very real instance of 'fraud' on the part of lenders is inherent in many of these so-called 'loans'.

Under those conditions, one should indeed feel free to 'walk away' from a so-called 'bad debt', using whatever legal means they have at their disposal.

To do otherwise, one only finds themselves 'paying' for the hoax -- when morally, fincncially, and ultimately as a culture, we will all pay for this hoax ANYWAY, as we already are.

Best to at least be placing one's personal resources where they can do the most good, since "Charity does begin at home".

If the truth ever comes out about the current crisis, hundred (perhaps thousands) of the former financial heads of loan origination companies, Fannie Mae, Freddie Mac, and even certain Federal officials will find themselves imprisoned for nothing less than RACKETEERING / MONEY LAUNDERING.

The Federal R.I.C.O. laws prohibit such activity.

I find it incredible that these laws are not being called into play by the FBI during ongoing investigations into the current malaise.

What else do you call it when:
1. An 'authority' (bank, lender) creates a situation,
2. 'Sells' that financial product to millions of people who can't now, or cannot soon afford it, and then,
3. Sell that 'debt' as an instrument to create more money with which to leverage more 'loans' of the exact same type, whose seeming sole purpose is to:
4. Begin the process all over again, leveraging each penny of perceived value into dollars of outstanding debt?

Anyone else here beginning to get the picture?

These are Federal crimes, and the people who were duped are not considered as 'responsible parties' in any such scenario -- rather, the loan originators, underwriters, and other 'investment' types.

Grand financial schemes, grand financial crimes.

Walk away.

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