05 Dec Bankruptcy Is NOT a Dirty Word
The headline caught my eye: “Is Bankruptcy ‘Business as Usual’ for Airlines.’ ” On NPR, no less. Reporting on the Chapter 11 filed by American Airlines, the article goes on to note:
You might say it’s almost business as usual for the airline industry. United, Northwest and Delta have all taxied down the Chapter 11 tarmac. US Airways did it twice in as many years.
Airlines use Chapter 11 as a normal business tool, like raising prices (baggage fees, anyone?) and layoffs. So do auto manufacturers, restaurant chains, department store chains, grocery store chains. Even municipalities and churches are using bankruptcy to restructure their debt, in an attempt to stay afloat and continue to operate. As noted in the NPR piece, there used to be a much greater stigma attached to Chapter 11 filings; now it seems to cause barely a ripple.
Yet while bankruptcy has become business as usual for businesses and even governments, personal bankruptcies are still highly stigmatized. In more than twenty years of bankruptcy practice, I don’t think I’ve met more than a hand-full of people who aren’t troubled, or even traumatized, by the prospect of facing bankruptcy, even if their bankruptcies are the result, direct or indirect, of the actions of their banks, or employers, or health care providers. Individual debtors facing bankruptcy often feel further traumatized by a system which treats them as inept at best, or foolish or criminal at worst.
Yet such attitudes are actually foreign to the foundations of bankruptcy laws in this country. First and foremost is the recognition that allowing people, as well as businesses, to restructure their debt is productive for all of us. Having learned something from the debtors’ prisons and colonies of Europe, as well as the “broken bench” of the guild system, both of which left a debtor’s family dependent on the alms of the church or wards of the state, our founders realized that a system which allows an honest debtor to periodically discharge overwhelming debt, and retain the tools to support his family and rebuild his financial future is a better outcome for us all. And perhaps the single-most important premise underlying bankruptcy laws today is the idea that only an “honest but unfortunate” debtor is eligible for a bankruptcy discharge.
So, at a time of almost unprecedented financial hardship for individuals, and at a time when businesses use bankruptcy as just another way to improve their bottom line, shouldn’t the stigma associated with bankruptcy be fading? Maybe so, but it hasn’t. All my clients struggle with the morality of the decision to file bankruptcy; virtually all of them wait too long, and suffer either emotionally or financially as a result. Personally, I admire them for it, even when I wish they would let me help. And, though I understand that a corporation doesn’t have morals, or a conscience, the people who run them do, and I could wish some of them were a bit more like my clients. But I also think it is important to consider the source of your financial problems in deciding whether to file bankruptcy. If you are an honest but unfortunate person, who is dealing with an overwhelming debt load because of job loss, illness or medical expenses, divorce, or any of a dozen other reasons that are, to one extent or another, out of your control, come see me or one of my colleagues. Like the airlines, manufacturers, retailers and municipalities, you may also benefit from bankruptcy. Bankruptcy is a legitimate way to a more productive life.
Bankruptcy is not a dirty word.
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