14 May Notes on Bankruptcy Article in The Atlantic
The June 2009 issue of The Atlantic magazine contains an interesting article on bankruptcy, Sink and Swim by Megan McArdle. The subtitle and thesis of the article is “Bankruptcy helps the undeserving—and that’s the way it should be.” Ms. McArdle argues that attempting to make a “fair” (read “harsh”) insolvency system misses the mark. She notes that people at the edge of bankruptcy really have little choice, cannot repay debts (however improvidently incurred), and that maximizes society’s benefit to make the process as quick and painless as possible. This is the difference between “us and Tanzania,” she posits: we have the ability to take risks, fails, and try again. This accrues to the benefit of society by making it vibrant, fluid, and entrepreneurial. Ms. McArdle gets it right here by noting that our permission to fail in this country enables much of our success. This is the main reason for a bankruptcy system.
I will only really quibble with one point: Ms. McArdle makes use of the common misconception that the 2005 bankruptcy amendments imposed new Chapter 13 repayment plans on people. She suggests that this has some connection to the anemic state of the banking system today. What she misses is that the 2005 amendments changed very little: both before and after these amendments, the bankruptcy system strove to achieve a degree of fairness by requiring that consumer debtors who could repay some debts in Chapter 13 do so. The 2005 amendments only created a more rigid structure to determine who could and could not afford to repay part of their debts.
Nicholas Ortiz, Boston Bankruptcy Attorney
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