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why do we allow bankruptcy?(14 posts)

why do we allow bankruptcy?mtber
Nov 20, 2002 9:41 AM
Not just venting, but something I am truly wondering about: why are we allowing so many people to declare bankruptcy, KEEP all the crap that ran up their credit card bills in the first place, and suffer few long term repercussions (sp?).

Case in point: A guy on my team, just turned 30, engineer (has to be making at LEAST $45k, never married, no kids. Always had all the cool stuff: bike, hopped up Jeep, several pairs of Oakleys, cool digital movie camera, laptop, cell phone, etc. I alway was somewhat envious but just thought, 'hey he must be making good money to afford all that stuff - if I was more serious about work, maybe Id be making more $$$'. Well, apparantly NOT! The dude just filed for bankruptcy with >$30k of debt! He is not the only young person that I know who is in the process of declaring bankruptcy.

Why has it become so easy???? In the past, it seems like it was more of a stigma that would tarnish your credit for life. Now it just seems like an easy way to live the good life without paying for it. In 3 yrs he will still be able to buy a house (albeit at a higher interest rate, but remember he is $30k in the black after erasing all his debt).

Who ultimately pays for this???? We do! Why does no one seem to care?
bring the poor houses back and lock 'em up - nmMJ
Nov 20, 2002 9:45 AM
Can't Australia's full up at the moment. nmSintesi
Nov 20, 2002 10:01 AM
What!? There's plenty of room. (nm)czardonic
Nov 20, 2002 12:09 PM
That's true you could pile them up in the desert. nmSintesi
Nov 20, 2002 12:30 PM
You don't usually get to keep it...TJeanloz
Nov 20, 2002 10:55 AM
There's a distinct limit on what you're allowed to keep post-bankruptcy. In filing a Chapter 7 bankruptcy, most of your assets are sold, and whatever is left over goes to the creditors. In filing under Chapter 13, you keep everything, but you have to pay off the debt over a restructured time period. It really isn't as easy or clean as you make it out to be. Your friend is not likely 30k in the black after erasing the debt, the goal of the bankruptcy court is to make him $0 in the black, and erase the debt.
I hope you apply the same contempt to institutional bkcy128
Nov 20, 2002 12:12 PM
i.e, employers (ok I'll say it CORPORATIONS) are also entitled to file for fkn up/insolvency. and they as well as individuals should be allowed this option. To answer your question, bankrupcy is intended to allow an insolvent debtor a fresh start, with some property and without the preexisting debt. It encourages entities to engage in business, which we want. Usually most valuable stuff (homes, capital goods, machinery)people/corps own is just collateral for debt (borrowed to buy the stuff in the first place) and there are lenders who have an interest in that stuff who get that stuff back (usually at a loss)so no one gets to keep the stuff. Bkcy is not an easy street solution. Bankruptcy facilitates our market economy. So. Go out there, get your undergarad. credit card at the campus center, take out those ed. loans, succomb to the barage of easy credit and no hassle lending terms, and then watch the current administration remove the bkcy option for those most likey to need it! Where is that bill anyway? Honestly I am not familiar enough wiht it to be too critical. YET!
Guaranteed under the ConstitutionLO McDuff
Nov 21, 2002 1:35 PM
Bankruptcy was included in the Constitution. Different states have different rules for the various types of bankruptcy (Chapter 11 vs. Chapter 7). For example, Florida (under Chapter 7) has an exemption that allows homeowners to keep their house no matter how much it is worth. This is why people who think they may have to declare bankruptcy in the future (e.g., Matt Drudge, O.J. Simpson, my doofus brother-in-law) move there. Texas has and exemption that allows you to keep your vehicles. Colorado's homestead exemption allows for $30k of home equity.

It is unlikely your friend will keep all the cool stuff. He will have to make a full inventory of his posessions and present them at the bankruptcy hearing. If he has been found to be less than 100% honest in his filing. He's really screwed. BTW, student loans are not discharged in a bankruptcy.

I guess to answer you question, the Founding Fathers hated the very British idea of debtors prison that they allowed bankruptcy. Apparently, Thomas Jefferson filed for bankruptcy more than once.
67.89.245.38LO McDuff
Nov 21, 2002 1:39 PM
Guaranteed under the Constitution
Guaranteed under the ConstitutionLO McDuff
Nov 21, 2002 1:39 PM
Bankruptcy was included in the Constitution. Different states have different rules for the various types of bankruptcy (Chapter 11 vs. Chapter 7). For example, Florida (under Chapter 7) has an exemption that allows homeowners to keep their house no matter how much it is worth. This is why people who think they may have to declare bankruptcy in the future (e.g., Matt Drudge, O.J. Simpson, my doofus brother-in-law) move there. Texas has and exemption that allows you to keep your vehicles. Colorado's homestead exemption allows for $30k of home equity.

It is unlikely your friend will keep all the cool stuff. He will have to make a full inventory of his posessions and present them at the bankruptcy hearing. If he has been found to be less than 100% honest in his filing. He's really screwed. BTW, student loans are not discharged in a bankruptcy.

I guess to answer you question, the Founding Fathers hated the very British idea of debtors prison that they allowed bankruptcy. Apparently, Thomas Jefferson filed for bankruptcy more than once.
that was weird (nm)LO McDuff
Nov 21, 2002 1:41 PM
Darn.Matno
Nov 21, 2002 9:16 PM
I was hoping to get rid of my student loans! (Just kidding). Actually, while I agree that the concept of a debtor's prison is counterproductive and an all around bad idea, I don't like the idea of being able to wipe out debt even a little bit. Restructuring to allow a different payment schedule perhaps, but not total debt elimination under any circumstance other than death or other similar disability. One of the biggest problems I see is that there is a "dwelling" exemption. That ought to have some sort of qualifier (though I'm not sure how you'd word it) to prevent people from keeping large, nice houses, even if they do have to sell off their other assets. Of course, in many cases of personal bankruptcy, the house is what caused the bankruptcy in the first place. People just aren't willing to move into a smaller house until they can afford a nicer one. If ya can't pay, don't live like ya can! (That's why I'm still riding the same bike I've been riding since '92).
housestrekkie1
Nov 22, 2002 11:43 AM
Usually, from what I understand, you get to keep the *equity* (or a portion of it) in the house, not necessarily the house. So, if you just bought it and put 5% down, you're outta there and get a check when it's sold. I could be wrong, though. The laws vary extremely from state to state. I heard that in Kansas, you get to keep a car for every licensed driver in the family. So, one time this guy was going bankrupt, moved to Kansas and bought 5 Mercedes for his kids, wife, and himself. I think he lost out on some bankruptcy fraud thing, though.
Another way to look at it.Spoke Wrench
Nov 24, 2002 9:41 AM
Credit card companies love for you to run up big balances on their cards so that they can chrge you 20% + in interest. They know that a percentage of those debts are going to default, but they feel they will make more money in the long run by just letting it happen. If they thought it was a bad business deal for them, they would be more selective in credit card distribution and more restrictive in their use of ceiling limits.