Bankruptcy: The Great Financial Mercy

This is going to be a philosophical post about bankruptcy. If you’re looking for answers about anything substantive, you might try here, but what I write below is something that I have been thinking about recently.

What are we to think about bankruptcy? Is it something that people get away with? When some people hear about it, that’s exactly what they think. The notion of a no-asset bankruptcy case is hard for some to swallow. People with any traditional sense of morality know that it’s the right thing to re-pay just debts. So, let’s take an example: a person incurs $20, 30, 40 thousand in credit card debt and then is able to pay a couple thousand dollars to a lawyer and the court, their creditors get nothing, and the individual gets a full debt discharge. This is possible when someone qualifies for Chapter 7, but isn’t this like getting off scott free?

I was wondering about this the other day. And I was specifically wondering why most of my clients don’t treat us like we’re accomplices to a crime. That is definitely not the relationship we have with our clients, and when they leave our sphere of influence they don’t seem to feel like they’ve gotten away with something. But how is that possible? Why don’t they slink off like thieves in the night? I think the reason is tied up with mercy.

What is mercy? Well for one thing, mercy is only possible when you’ve screwed up. The bankruptcy system is ultimately the greatest expression of our society’s financial mercy. Though fractious and polarized, we have agreed on it. We do not want to become a society of debtors’ prisons. Some may reach this conclusion based on the economic efficiency of purging bad debt and rehabilitating new borrowers, but for others, there is an element of mercy in it.

A person who humbly receives mercy is made larger just like the person who humbly extends that mercy, knowing that they themselves need mercy in their lives. When I assume this stance, as the humble emissary of the system’s mercy, and people accept the system’s mercy, I see them emerge from bankruptcy with a lightness of spirit and a joy for the new financial life ahead. Most of the time…this is not true for everyone. It takes some degree of vulnerability to accept mercy, and sometimes people emerge from bankruptcy suspicious and, although I am not usually in a position to see it, probably more likely to judge others harshly. These are often the same people who blame the groups or people who lent them the money they won’t be re-paying. This is abetted by some in the debt relief field who talk about the “evil credit card companies” and “predatory lenders.” This is the wrong way to get over the physiological hump of filing. If you can’t pay your debts, the healthy way to prepare yourself for help is to allow yourself to receive mercy. If you come to it gracefully and humbly, pay your psychic (and credit-reporting) penance, you will emerge happier, healthier, and without the suspicious feeling of having gotten away with something criminal. Your life story will include times in which you give and receive mercy and, ultimately, that’s okay–it means you’re human.

You may qualify for Chapter 7 and be able to fully discharge your debts (this remains on your credit for 10 years) or Chapter 13, which requires that you pay back some of your debts, but which only stays on your credit for seven years. Here’s more about choosing between those chapters.