It is a long accepted idea that filing of bankruptcy cases by debtors across the county would be considered bad for the nation economy. The notion being that if a Debtor in bankruptcy is getting rid of the debt, that a creditor out there is losing out on that payment. We must examine several issues with that first statement.
First of all, most Debtors are forced into filing of a Chapter 7 or Chapter 13 Bankruptcy case due to high unsecured debt ranging from credit cards, personal loans, payday loans or vehicle deficiencies. For the most part, these particular creditors are charging such high interest rates that their actually tangible loss is minimal at best. This is largely due to predatory lending, a practice in which a creditor lends money at high interest rates knowing that the Debtor is unable to pay back the debt. The creditor takes payments as they can and then when the Debtor defaults on the loans, they take them to collection and seize bank accounts, tax refunds and pay advices in the amount of 25% of the debtor’s income until the debt is paid. When all is said and done, even if the Debtor files for bankruptcy on the debt, usually the Creditor as already collected at minimum, the principal balance of the loan.
From my 10 years of experience in the Bankruptcy Practice, I have seen many situations where a Debtor is unable to work due to an inability to obtain a vehicle for fear of seizure, or fear of garnishment. Once that debt is gone, the Debtor is able to become an active participant in the national economy by working without the fear of collection.
Lastly, the ability to take on debt to open new businesses empowers people and stimulates the economy by allowing people to take the risk of opening a business and being able to hit the reset button if it doesn’t work out. A Debtor should not be burdened with this sort of debt for the rest of their lives.
