And you forget the biggest point of all. We live in a free country. Nobody is forcing anyone to accept any loan they don’t want; if you don’t like the terms and conditions don’t sign the application. However if you do sign and take on debt, you should be man enough to repay it even if you don’t want to.
Wow, I must say I’m surprised to hear this from you. But let me be clear about what I am saying and what I am not saying. (By way of disclosure, most of my practice is representing large creditors in business bankruptcies and workouts.)
Blame: I am not saying that people who borrow too much are free from blam. I am saying that some of the blame should be borne by irresponsible lenders.
Sympathy: I have sympathy for many (not all) consumers who wind up in bankruptcy. In most cases, they are unsophisticated and naively but sincerely believe that they will be able to pay off their credit cards over time. Sometimes, they are just bad at math and underestimate how fast interest can pile up at 20%+. They also overestimate their ability to curb future spending and save money. They also are bad at planning for “unforeseen” emergencies, like medical bills and layoffs. These are, of course, not unforeseen for the population, but nobody ever believes it will happen to them. Ignorance and naivete are not legal defenses, but they do evoke sympathy.
On the other hand, I have no sympathy at all for the credit card companies because (1) they know exactly what their default rate will be and are just making informed business decisions based on statistical models about whether and how much to lend people. Using your argument, this is a “free country” – nobody is forcing them to lend money to anyone. (2) in almost all cases, by the time there is a bankruptcy filing, they have recouped their actual losses and are just owed interest and fees, and (3) in most states, the interest rates charged by credit card companies would be usurious. HOwever, because they set up shop in usury havens like Las Vegas (or “The Lakes” as they like to say) and South Dakota, they can get away with what individual lenders could not. This is hardly the moral high ground.
Public Policy and Means testing: Finally, let’s not forget that one of the primary purposes of bankruptcy is to afford people a fresh start. Why? Well, if you knew you were going to be saddled by your debts for the rest of your life, would you work as hard as you can? Maybe not. You have less incentive because your disposable income will be going to pay 20% interest to your credit card company for the rest of your life. For some people, they will NEVER make enough to pay off these debts. That is not good for society because we want people to be highly motivated to be productive. For all of you good Christians, out there, let’s not also forget that the Bible tells you that every 7 years there should be debt forgiveness (a debtor’s “jubilee”). Why? Presumably, it is considered immoral to saddle people with debts forever. So, to me, the fact that you might be able to pay off all of your debts in the future if you commit all of your disposable income to a repayment plan is not compelling policy.
Finally, although lawmakers like Grassley have been trumping up charges of mass bankruptcy abuse, the truth is that it is not the norm. There are a small number of people who truly abusing the bankruptcy laws. Congress could tweak the laws to help rectify this without implementing wholesale reform to help the credit card companies. But they don’t really care about that. They already cut the most effective reform out of the bankruptcy bill: uniform homestead exemptions. Initially, the bill had a provision that would cap homestead exemptions at $125,000, I think. That got tossed, meaning that you can continue to move to Florida and Texas and exempt your entire multimillion dollar mansion, a la OJ and Bilzerian.