Filing Bankruptcy Should Be a Business Decision – Not a Moral Decision
Most homeowners who consider filing bankruptcy in order to escape a crushing debt burden often feel guilty about bailing out on debts they originally promised to pay back. Whether they are attempting to get back on top of a mortgage through the protection of the courts or just eliminate high interest credit cards and huge medical bills, though, bankruptcy should be considered more of a business decision than anything else.
After all, it is inconceivable that a multinational corporation would go bankruptcy and its directors feel guilty about defaulting on billions of dollars of debt. Such businesses do not appear on the nightly news apologizing profusely to their creditors; instead, they are simply liquidated for whatever they are worth and the banks are paid off as best they can. If there is not enough to pay all of the debts, then the creditor are out of luck — nothing more is done after the business’ assets have been sold off.
Even worse, in some cases of insolvency, it is not the corporations that are stuck with the bills, nor are the creditors faced with huge losses — all of the negative consequences of bad business decisions are transferred to the general public. When Bear Stearns went under, the Federal Reserve provided tens of billions of dollars for a bailout courtesy of American people, and legislators are proposing similar acts to bail out the mortgage giants Fannie Mae and Freddie Mac and sticking the bill with all of us.
Never will any of these corporations apologize to each and every one of us about their illogical business decisions, misplaced trust in people who could not pay their mortgages, or failure to plan for a future longer than the end of this fiscal quarter. In fact, many bankrupt companies end up blaming the problem on the actions of the people in other sectors of the market; e.g., the soft economy, greedy speculators, bad press, and so on will be the cause of corporate bankruptcy.
All of this should indicate to homeowners that there is no reason for shame if they need to file bankruptcy to protect their assets and financial lives against lawsuit-happy collection agencies and creditors. When economic conditions change and families experience a financial hardship, then the business of their ability to meet debt payments must also change to meet the new conditions. If there is no way to maintain a reasonable standard of living as well as pay the debt, then something must give.
There are a lot of good reasons to avoid bankruptcy, but a feeling of moral responsibility to the lenders is not one of them. If the banks all declared bankruptcy tomorrow, there would be a huge number of depositors who would never get any of their money back that they lent to (deposited with) the banks. The FDIC insurance fund will not last long enough as it stands now to meet nearly all of the coming bank failures. And there would be even fewer apologies from the banks to the people whose money they mismanaged.