Your Thoughts on Personal Bankruptcy

[coppertop]

I was thinking about this when I was listening to Dave Ramsay the other night on my way home.  Somebody called in and somehow DR got on a rant about the morality of not paying one's bills ... but then referred to his own bankruptcy and somehow he justifies having done that, while at the same time castigating someone else for evading bill payments.  I personally know a guy who is going through his second bankruptcy.  He gets in trouble with his mortgage and then files bankruptcy to stop foreclosure proceedings.  He'll likely do it again seven years after the present bankruptcy is completed.  My opinion is that anyone can screw up royally once, and should be allowed to start over with a clean slate...but that should be the limit.  There should be no serial bankrupts.  The guy I am talking about will never learn.  He thinks he is entitled to certain things and is not willing to forego anything in order to stay on top of his bills.  He will likely be in financial trouble for the rest of his life.  The taxpayers are going to wind up subsidizing him once he is no longer employable and has no money set aside for a rainy day.  He's already cashed out his 401(k). 

[Pooplips]

If people are dumb enough to keep lending him money, so be it.

The problem is, like you stated, when he gets older he knows there is a backstop to catch him and take care of him. He has no need to exercise any personal responsibility. Savers end up paying.

[RoadLessTravelled]

There are situations that cannot be foreseen and that can result in someone going broke and losing everything.  However, that does not mean they need to file for bankruptcy.  You can go broke, owe the money and start over with debts to pay as and when you can.

Whether you can justify avoiding paying your debts or not is a moral question each individual has to answer to themselves for.  During the Dust Bowl days, there were farming families in Oklahoma who literally had children starve to death because the Father did not believe in taking a hand-out from anyone.  They stood on their moral principles beyond the point of sanity in my opinion.

But you cannot compare those people to people today who run up large amounts of consumer debt and then decide to file for bankruptcy.  My point is that it depends on the individual circumstances.  A pendulum swings from one extreme to another and there will always be people at either end of that pendulum's swing.  Some may refuse to file for bankruptcy who should and some will take advantage of it to avoid paying debts they never needed to accumulate in the first place.

The guy you are talking about is obviously at one end of the pendulum's swing and there are other people at the other end who are not feeding their kids properly while trying to pay debts they could not avoid.  Neither is right and are acting irresponsibly.  But we cannot judge ALL based on the actions of some.  We have to judge each individual based on their individual actions.

[grantmeaname]

The taxpayers are going to wind up subsidizing him once he is no longer employable and has no money set aside for a rainy day.

How are the taxpayers going to subsidize him? Does he get a public loan from FNMA every seven years?

[forummm]

Bankruptcy is no fun. I think I enjoy my life better than people who have to go through that (including the build up as they are drowning in debt more and more and can't get out). If people are going to lend to him, that's on them. With the bankruptcy on his record, he'll have a hard time getting credit for a while.

[Mr Dorothy Dollar]

I think bankruptcy is a tool. It can be used for good (fresh start for whatever reason including poor money management) or bad (fraud). The tool itself opens up opportunities to people who would not have the opportunity. Overall, I feel bankruptcy is good. Creditors are more sophisticated than debtors and know the risk verse reward with lending. Bankruptcy is a risk and is calculated into the agreements that the creditors draft and make the debtor agree to. I refuse to feel sorry for a creditor that entered into a bad contract which they wrote protecting themselves from class action lawsuits using arbitration clauses. A creditor the lends to a previous bankrupt person better make sure the terms of the agreement take in to account the likelihood of subsequent filings. If the creditor cannot figure out how to make money by lending then don't lend.

In a world where very few hold most of the chips bankruptcy is a wildcard on the last hand.

Everyone here is closer to the bankrupt schlub than the big time banker even if you are FIRED. So you should empathize with these people over the bankers.

[Retired To Win]

If people are dumb enough to keep lending him money, so be it...

Not for seven years, they wouldn't.  That's how long the bankruptcy will remain as a "public record" on his credit report.  A lender sees that and it's normally an instant turndown.

[golden1]

My opinion is that anyone can screw up royally once, and should be allowed to start over with a clean slate...but that should be the limit. 

Agreed.   In high school, I worked a summer job at a law office, and I remember hearing a senior secretary talk about how she was declaring bankruptcy for the third time, basically because she just bought a lot of shit and went on a lot of vacations.  She was very nonchalant about it and acted like it was no big deal.  I don't understand that mentality.     

I do think it can be a great tool for those "shit happens" moment in life that a minority of people fall into.  You can do your best to save and prepare for stuff, but sometimes even the best laid plans fail especially in regards to health, or the birth of a special needs child etc....

[mathlete]

If someone can't pay their debts, I have no problem letting it go. There is really no point in spending a lifetime of time and effort hounding someone to pay bills that they're incapable of paying.

Agree with what other posters say. Bankruptcy sucks. The reward paying your bills is not having to deal with bankruptcy.

And yeah, at the end of the day, banks shouldn't underwrite bad credit risks. Lending money means risk. That's why they call it a risk premium. The banking industry wouldn't make money if there wasn't the risk of default.

So I say no limit on personal bankruptcies. The government already worships at the altar of the banks enough.

[Eric]

I'm pretty sure it beats Debtor's Prison

[MayDay]

I have no negative feelings about medical debt causing bankruptcy. As far as I'm concerned, file away.

Consumer debt, eh, don't loan money to people if they can't pay. Yes it's irritating that people seem to get a free ride, but I'll take my peace of mind.

[BlueHouse]

I think people should have to wear a scarlet B of some sort in their credit records. Cable companies and stores like Best Buy shouldn't be allowed to take money from these people.
Also, no takeout food, no hair weaves, no manicures, and no Disney.
People who declare bankruptcy should be forced to live in a way that they can learn needs vs wants (for a certain period of time, not forever).
A relative recently had a bankruptcy and he just doesn't get it.  Still has cable, still plays golf, still eats out at fancy restaurants and thinks of himself as a foodie. Still is a wine snob, only buying bottles that are $40 or more.

[grantmeaname]

Not only should that be the case, but also that is the case. Learn the basics before you go dismantling the system in place.

[Novillero]

A few facts need to be brought out here:
(1) chapter 7 bankruptcy stays on your credit for 10 years.
(2) you can file a chapter 7 every 8 years.
(3) before filing you need to take a bankruptcy course run by a nonprofit agency that informs people about alternatives to bankruptcy.
(4) before having your debts discharged you need to take a second course on financial education.

[alsoknownasDean]

I don't think it's an overly bad thing. Any lender will usually take into account that some of their debts will go bad, and there's plenty of legitimate reasons why someone would declare (medical debt, failed business, etc).

One could almost argue that being able to 'wipe the slate clean' with a bankruptcy allows people to take more chances and create more opportunities with starting their own businesses and the like (which benefits the economy in the long run). If bankruptcy didn't exist, would people be as likely to take a risk with a business venture, or would they be more conservative with their investments?

Here's a thought, if someone has a second or third bankruptcy, should it remain on their record longer than their first? If they've messed up once, fair enough. If they've gone bankrupt three times, surely there's a pattern going on here that any lender would need to be aware of.

[Much Fishing to Do]

As a small business owner I might have a different viewpoint.  I have a few very large projects a year with many expenses.  If after the project someone (always a company, not a person) doesn't pay me it would wipe out multiple projects worth of profit.  I could easily end up with $0 of income for the year from such a hit.  I can't practically charge up front b/c thats not the way its done, and frankly it makes more sense for them to pay me after I do the job and not before. 

I am not in favor of debtors prisons, but I'm not exactly ok with the government just voiding my contract with someone either saying they never have to pay me, after I've done the work and been hit with the expenses, even some day when they may be able to (they obviously will not pay me before they can pay me, and I know that is always a risk I am always taking).

I know this is slightly off topic due to the business relationships, but in the end there are many like me that have contracts with persons, and there are some basic similarities to consider.  Its a lot easier to not care when those losing out are large corporations (or even lenders directly targeting those with bad credit), but the basics of what bankruptcy means seems a little more complex than that.

[grantmeaname]

Have you ever had a project that you couldn't collect on? What's your line of work?

(Though the economic truth of it is much the same, businesses also don't need bankruptcy to avoid paying you - if there's no money, there's no money. You generally can't take money from the owners beyond the amount they initially invested.)

[Paul der Krake]

As a small business owner I might have a different viewpoint.  I have a few very large projects a year with many expenses.  If after the project someone (always a company, not a person) doesn't pay me it would wipe out multiple projects worth of profit.  I could easily end up with $0 of income for the year from such a hit.  I can't practically charge up front b/c thats not the way its done, and frankly it makes more sense for them to pay me after I do the job and not before. 

I am not in favor of debtors prisons, but I'm not exactly ok with the government just voiding my contract with someone either saying they never have to pay me, after I've done the work and been hit with the expenses, even some day when they may be able to (they obviously will not pay me before they can pay me, and I know that is always a risk I am always taking).

I know this is slightly off topic due to the business relationships, but in the end there are many like me that have contracts with persons, and there are some basic similarities to consider.  Its a lot easier to not care when those losing out are large corporations (or even lenders directly targeting those with bad credit), but the basics of what bankruptcy means seems a little more complex than that.

Have you tried to put some mechanisms in place to mitigate your counterparty risk? Collateral, or prepayment of a fraction of the total amount due.

[nobodyspecial]

but I'm not exactly ok with the government just voiding my contract with someone either saying they never have to pay me, after I've done the work

I always wondered who would ever sell stuff to airlines?
Since their business model seems to be to be in chapter 11 constantly .

[Katsplaying]

Bankruptcy sucks ass so bad but the horrifying descent to making that decision is worse. Creditors calling home AND WORK, horror notices showing up daily, etc. It was shaming on a level I didn't know existed and it still embarrasses me today.

I ended up bankrupt after a failed relationship left me with thousands in debt along with newly required child-care expenses. However, just 4 years later I had gotten enough of my sh*t together to qualify for a mortgage on my own, which was amazing as I thought I'd be screwed forever out of buying my own place.

I will not tie my financial well-being to anyone else ever again. I will not rely on anyone else to support me. I made my giant, insanely expensive, foolish mistake and learned from it.

[shelivesthedream]

In response to someone up thread about credit records and multiple bankruptcies, I think that's a pretty good idea. So bankruptcy 1 stays on your credit record for 10 years and one year after that expires you file for bankruptcy again. What if ALL previous bankruptcies then popped up on your file for another ten years, every time you went bankrupt? I wonder if it would take the sting out of a first bankruptcy just a tiny bit because creditors would be able to see it was definitely your only one, but if you did it multiple times they would actually be able to tell and surely would be much less likely to lend to you.

[grantmeaname]

Are you worried about how little money the banks make due to the number of serial bankruptcies that predatory consumers are pulling over their eyes?

[Dicey]

Everyone here is closer to the bankrupt schlub than the big time banker even if you are FIRED.

Are you, by chance a troll? I am positive there are big time bankers who live paycheck to paycheck, are in debt up to their eyeballs, and have considered or even completed bankruptcy proceedings. People who are FIRED have figured out how to live within their means and more inportantly, how to be resillient should their means change. Please pack up your blanket statements and go away.


+2 to the idea that subsequent bankruptcies should have longer penalties. Brilliant.

[shelivesthedream]

Are you worried about how little money the banks make due to the number of serial bankruptcies that predatory consumers are pulling over their eyes?

No, I just want multiple bankruptcies to be life-ruining.

[Genevieve]

It's important to know what people actually file for:
http://www.clearbankruptcy.com/financial-literacy/10-leading-causes-of-bankruptcy.aspx

Only 15% of cases are due to true overspending.

So the question might be should we give bankruptcies to those people? And if not, how would you do that, while still allowing everyone else the ability to do so?

I don't know the answer to any of those questions.

But the most flagrant examples of bankruptcies that feel wrong are not common.

[forummm]

Something to consider in the discussion: The exact number is debated, but before the ACA, about 2/3 of bankruptcies happened due to medical bills. Perhaps that number will decline substantially now if the ACA remains in effect.

[grantmeaname]

I just want multiple bankruptcies to be life-ruining.

Are you joking or are you a terrible person? Even if someone is a genuine asshole rather than a run-of-the-mill idiot, I don't wish suffering and despair on them.

[Paul der Krake]

It's important to know what people actually file for:
http://www.clearbankruptcy.com/financial-literacy/10-leading-causes-of-bankruptcy.aspx

Only 15% of cases are due to true overspending.

Aren't the reasons self-reported? Sure, that $10,000 ER bill may very well have ultimately triggered the bankruptcy filing, but that shouldn't overshadow years of poor spending habits and lack of planning.

[forummm]

It's important to know what people actually file for:
http://www.clearbankruptcy.com/financial-literacy/10-leading-causes-of-bankruptcy.aspx

Only 15% of cases are due to true overspending.

Aren't the reasons self-reported? Sure, that $10,000 ER bill may very well have ultimately triggered the bankruptcy filing, but that shouldn't overshadow years of poor spending habits and lack of planning.

Yes, it's hard to know exactly. I think (but don't have data) that those people being pushed into bankruptcy due to medical bills would be more likely to be a 6 or 7 figure medical bill. Those kinds of bills could be very hard to get out from under even some decent spending habits. But I'm sure most people who get them have bad habits since most people have bad habits.

[shelivesthedream]

I just want multiple bankruptcies to be life-ruining.

Are you joking or are you a terrible person? Even if someone is a genuine asshole rather than a run-of-the-mill idiot, I don't wish suffering and despair on them.

I'm not really joking, but I don't think I'm as terrible a person as my rather blunt post suggested. One massive caveat is that I'm from England where we have the NHS. Medical bankruptcy is not a thing over here, and I think it is absolutely shocking the way people's life savings are poured into medical care in America. I would not judge anyone for a medical bankruptcy as I think it totally unreasonable to have to pay a hundred thousand pounds just to stay alive because you happened to be the unlucky one who got cancer (yes, I am aware of insurance and deductibles but the principle still offends me). We also don't have the insane university costs that you do, and do have council houses (albeit with long waiting lists) so they shouldn't be out on the street.

So I'm mainly talking about people who over-committed themselves financially, got into a lot of debt, and suddenly the whole pile of cards came crashing down because they lost their job or whatever. Do correct me if I am wrong, but I cannot think of anything other than poor financial management that would make this happen.

In my scenario, that person goes bankrupt. The slate is wiped clean, and although there is a big black mark on it, they can go about rebuilding their life. One hopes that they have learnt their lesson, they live within their means and we never need speak of that dark time again. However, what if they then go and do the exact same thing again? Get into huge debt for stupid things and cannot pay it back? Bankruptcy number two. Should we be sympathetic this time? I would argue not. They have had one wipeout, will no doubt have had debt counselling and so on at the time, and have then gone and done the exact same thing again.

To me, it would seem fair that no one lends money to this person again. They still have a job, so they can still earn enough to live on, but they cannot spend more than their paycheque because they simply cannot access that credit. If they want a car, they will have to save up. If they want to have their nails done every week they will have to DIY or do without. If they want to take their children to Disneyworld they will have to stay home until they can pay in cash.

The double bankruptcy would still come off their credit record after ten years, but hopefully those years of credit-less living will have taught them a lesson. If not, then a third bankruptcy will quickly ensure another then years of cash-only living.

[Novillero]

As a bankruptcy attorney, I often wonder in what state are all of these sick people filing for bankruptcy because it is certainly not where I practice.  Loss of a job (or reduced hours), divorce and overspending is what I see the most.  I know there are all these "studies" out there, but it just don't see it.

And while I may see a medical bill here and there, true medical debt is no where near 62% as recently touted - not even a quarter of that from my vantage point.

[Pooplips]

If people are dumb enough to keep lending him money, so be it...

Not for seven years, they wouldn't.  That's how long the bankruptcy will remain as a "public record" on his credit report.  A lender sees that and it's normally an instant turndown.

I know two different people that filed for bankruptcy and after only about 3 years were able to secure loans. So, you statement is not exactly accurate. I'm sure the interest rates they got were terrible.

[grantmeaname]

Do correct me if I am wrong, but I cannot think of anything other than poor financial management that would make this happen.

How about starting a business, which is the reason our economy needs bankruptcy protection in the first place?

To me, it would seem fair that no one lends money to this person again.

To me, it would seem fair if people who evaluate creditworthiness for a living were to look at the person and decide whether or not to extend them credit, and if all the market participants decided they weren't a good credit risk then they would not be lent money. Which is exactly the system in place. And again, even then, even if you don't like the idea that someone could be extended more credit after two bankruptcies, why would you wish that it ruined their life?

[Mr Dorothy Dollar]

Everyone here is closer to the bankrupt schlub than the big time banker even if you are FIRED.

Are you, by chance a troll? I am positive there are big time bankers who live paycheck to paycheck, are in debt up to their eyeballs, and have considered or even completed bankruptcy proceedings. People who are FIRED have figured out how to live within their means and more inportantly, how to be resillient should their means change. Please pack up your blanket statements and go away.


+2 to the idea that subsequent bankruptcies should have longer penalties. Brilliant.

Not a troll. Do troll post pictures of themselves? Just opinionated. It is funny you hate blanket statements, then proceed to make a blanket statement about the qualities FIRED people posses. Being FIRED does not mean you have any qualities. A FIRED person could have happened into money, this provides no skills. Is your problem that you do not like to think about how tenuous your situation is or that you would like to tear-down the bankers? If you want to tear-down the bankers go for it. However, I feel you feel somehow superior to the bankrupt people, your pride is misplaced. Medical debt, bad investment, sudden job loss, divorce, or court proceeding could make you one of the bankrupt people you look down upon.

[gReed Smith]

Other people's bankruptcies probably cost us less than we think.  Prices are set by supply and demand. Other than a marginal affect on the willingness of creditors to supply credit, bankruptcies aren't costing consumers.  If you're a major shareholder or officer of a bank, you may be concerned, but somehow the banks keep humming along.

Bankruptcy is pretty frustrating and painful.  I think it's a rare soul who repeatedly uses it to the extent of abuse, and I'm betting those people aren't really skipping away from the courthouse each time.

[Paul der Krake]

To me, it would seem fair that no one lends money to this person again.

To me, it would seem fair if people who evaluate creditworthiness for a living were to look at the person and decide whether or not to extend them credit, and if all the market participants decided they weren't a good credit risk then they would not be lent money. Which is exactly the system in place. And again, even then, even if you don't like the idea that someone could be extended more credit after two bankruptcies, why would you wish that it ruined their life?

Ruining someone's live is a little strong, but visibly inconviencing the reckless can be a great deterrent and make others think twice. IMHO, not being able to borrow money for 7 years at normal rates isn't much of a hardship at all.

[SweetTPi]

It's important to know what people actually file for:
http://www.clearbankruptcy.com/financial-literacy/10-leading-causes-of-bankruptcy.aspx

Only 15% of cases are due to true overspending.

Aren't the reasons self-reported? Sure, that $10,000 ER bill may very well have ultimately triggered the bankruptcy filing, but that shouldn't overshadow years of poor spending habits and lack of planning.

Yes, it's hard to know exactly. I think (but don't have data) that those people being pushed into bankruptcy due to medical bills would be more likely to be a 6 or 7 figure medical bill. Those kinds of bills could be very hard to get out from under even some decent spending habits. But I'm sure most people who get them have bad habits since most people have bad habits.

I have a coworker who recently declared bankruptcy due to medical bills (pre ACA) that they've tried to work out but couldn't.  Not ER bills, cancer bills.  Some cancer drugs will absolutely save your life, but the cost, just for that drug and nothing else of the treatment, is more than $100,000.  Adding on hospital stays, chemo, other drugs?  How much is a life worth?  I don't begrudge them the ability to declare bankruptcy and to try to move on with their lives.  They made a good effort to negotiate and pay what they could, but it's not possible for them to pay back the enormous bills.

[shelivesthedream]

Do correct me if I am wrong, but I cannot think of anything other than poor financial management that would make this happen.

How about starting a business, which is the reason our economy needs bankruptcy protection in the first place?

To me, it would seem fair that no one lends money to this person again.

To me, it would seem fair if people who evaluate creditworthiness for a living were to look at the person and decide whether or not to extend them credit, and if all the market participants decided they weren't a good credit risk then they would not be lent money. Which is exactly the system in place. And again, even then, even if you don't like the idea that someone could be extended more credit after two bankruptcies, why would you wish that it ruined their life?

OK, OK, so "life-ruining" was a massive overstatement! Let's move on from those specific words. Perhaps "enforcedly life-changing" is a better option.

To answer your second point first, I know creditors will lend money is they think the risk/reward is worth it, but for someone who went irresponsibly bankrupt do you think they will even look at the interest rate? It will, reasonably from the creditor's point of view, be sky high, quite possibly leading to another bankruptcy because the bankrupt person didn't think about whether they could afford the interest because, let's be honest, they didn't have to. Nothing in their life has changed from their perspective (still lots of credit so lots of spending) except that now they don't have any debt - so can promptly go and run up lots more!

Anyone can make one mistake, but no one should make the exact same mistake twice. In a twisted way, I think "no credit for multiple bankrupts" might help them because it would force a sustainable lifestyle change on them, at least temporarily. They would actually experience consequences from their actions.

And to answer your first point second, could you explain to me an example scenario of how someone starting a business goes personally bankrupt (without spending thousands of pounds on unaffordable luxuries)? It's not an area I have much experience of, although I do freelance as a sole trader myself.

[Zinsch]

Other people's bankruptcies probably cost us less than we think.  Prices are set by supply and demand. Other than a marginal affect on the willingness of creditors to supply credit, bankruptcies aren't costing consumers.

And guess what that supply depends on? Yes, you guessed correctly, it depends on costs. And unpaid bills cost businesses money, which they have to cover by raising prices.

[GuitarStv]

Are you worried about how little money the banks make due to the number of serial bankruptcies that predatory consumers are pulling over their eyes?

I am constantly concerned about the poor banks being taken advantage of by those parasitic consumers.  They're barely getting by.  One of my banker friends said that after his employer was bailed out by the government for falsifying financial documents to make bad loans they cut bonuses . . . and he could only afford one single ivory back-scratcher!

[libertarian4321]

I think bankruptcy is a tool. It can be used for good (fresh start for whatever reason including poor money management) or bad (fraud). The tool itself opens up opportunities to people who would not have the opportunity. Overall, I feel bankruptcy is good. Creditors are more sophisticated than debtors and know the risk verse reward with lending. Bankruptcy is a risk and is calculated into the agreements that the creditors draft and make the debtor agree to. I refuse to feel sorry for a creditor that entered into a bad contract which they wrote protecting themselves from class action lawsuits using arbitration clauses. A creditor the lends to a previous bankrupt person better make sure the terms of the agreement take in to account the likelihood of subsequent filings. If the creditor cannot figure out how to make money by lending then don't lend.

In a world where very few hold most of the chips bankruptcy is a wildcard on the last hand.

Everyone here is closer to the bankrupt schlub than the big time banker even if you are FIRED. So you should empathize with these people over the bankers.

There is so much wrong with this post, I almost don't know where to start.  Not only are you promoting unethical behavior, you show a shocking lack of understanding of business and economics.

First off, you really are NOT "screwing the big time banker" when you default, YOU ARE SCREWING THE HONEST "little guy" who borrows money.

How is that possible, you ask?  Every time someone defaults, the lenders (bankers) take it into account.  It results in HIGHER INTEREST RATES, HIGHER FEES, and less money availability for everyone who needs a loan (you may not even be able to get a loan- a perfect example of this was the way the lending world cut so many people off in 2008).

The banker can survive the hit.  He won't be hurt much (and if he does take a big hit, he has the political power to get government to bail him out). 

But it hurts the guy who needs a home or car loan or small business loan a lot.  Because some jerks don't pay their bills, everyone pays more on their loans.  If you pay even an extra fraction of a percent on a home loan because of bad debts, over 30-year period, you end up paying a ton of extra money.

Money that you would not have had to pay if the clueless folks who think "bankruptcy screws the fat cat" just paid their damned bills...

[Mr Dorothy Dollar]

I think bankruptcy is a tool. It can be used for good (fresh start for whatever reason including poor money management) or bad (fraud). The tool itself opens up opportunities to people who would not have the opportunity. Overall, I feel bankruptcy is good. Creditors are more sophisticated than debtors and know the risk verse reward with lending. Bankruptcy is a risk and is calculated into the agreements that the creditors draft and make the debtor agree to. I refuse to feel sorry for a creditor that entered into a bad contract which they wrote protecting themselves from class action lawsuits using arbitration clauses. A creditor the lends to a previous bankrupt person better make sure the terms of the agreement take in to account the likelihood of subsequent filings. If the creditor cannot figure out how to make money by lending then don't lend.

In a world where very few hold most of the chips bankruptcy is a wildcard on the last hand.

Everyone here is closer to the bankrupt schlub than the big time banker even if you are FIRED. So you should empathize with these people over the bankers.

There is so much wrong with this post, I almost don't know where to start.  Not only are you promoting unethical behavior, you show a shocking lack of understanding of business and economics.

First off, you really are NOT "screwing the big time banker" when you default, YOU ARE SCREWING THE HONEST "little guy" who borrows money.

How is that possible, you ask?  Every time someone defaults, the lenders (bankers) take it into account.  It results in HIGHER INTEREST RATES, HIGHER FEES, and less money availability for everyone who needs a loan (you may not even be able to get a loan- a perfect example of this was the way the lending world cut so many people off in 2008).

The banker can survive the hit.  He won't be hurt much (and if he does take a big hit, he has the political power to get government to bail him out). 

But it hurts the guy who needs a home or car loan or small business loan a lot.  Because some jerks don't pay their bills, everyone pays more on their loans.  If you pay even an extra fraction of a percent on a home loan because of bad debts, over 30-year period, you end up paying a ton of extra money.

Money that you would not have had to pay if the clueless folks who think "bankruptcy screws the fat cat" just paid their damned bills...

First, bankruptcy is ethical as anything in society. Your narrow version of what is ethical is not what society has decided is with its laws. Society has decided that debtors prisons are unethical.

Second, bankruptcy does screw the fat cat because they can only charge an interest rate that the market will sustain. The big bankers are still restrained by market forces just like us little guys, until they get a bailout which I feel there is no political capital to do again in most our lifetimes. If banker X had tons of bad loans they cannot just raise rates to get more profit because banker y was better at managing debt so they can offer a better rate. As to bankers closing markets, if you had good credit in 2008 you could get a loan. Millions of people did including me, at a very good rate.

Lastly, a lack of understanding how to get the best rate or how to use credit effectively is not the bankers fault. Seems like you want to push not finding good rates on to the banker for not providing rather than onto the consumer for not finding. If little guy got a bad loan that cost were high in the recession there are cheap loans now. When you can find an FDIC/NCUA bank/CU account at 3% and get a home loan at 4%-4.5% a car loan for 1%-1.5% the only people hurting are the banks.

Quite blaming people advocating for the debtor, it takes two parties to make a debtor.

[gReed Smith]

Second, bankruptcy does screw the fat cat because they can only charge an interest rate that the market will sustain. The big bankers are still restrained by market forces just like us little guys, until they get a bailout which I feel there is no political capital to do again in most our lifetimes. If banker X had tons of bad loans they cannot just raise rates to get more profit because banker y was better at managing debt so they can offer a better rate.

This.  Consumer bankruptcies have only a small marginal affect on borrowers because prices are restrained by supply and demand, not expectations for profit by the bank.  Bankruptcies may have a slight marginal effect on the willingness of banks to supply credit, but in a world where money is more-or-less in infinite supply (because banks borrow freshly printed money from the fed), banks' willingness to supply is driven by each individual's credit worthiness, not by a limited supply of money.

[dachs]

Ist it true that personal bankruptcy doesn't work with student loans in the US? And if yes, what law makes that possible? I mean you could go ahead an say "yeah, doesn't work for house credits either" and then "okay, credit card debt neither..." etc...

[grantmeaname]

Yes, it's true. It's been discussed in the forums a million times, but suffice it to say there are good reasons student loans are nondischargeable. Use the search feature to educate yourself.

[nobodyspecial]

Ist it true that personal bankruptcy doesn't work with student loans in the US? And if yes, what law makes that possible?

Because they are the ultimate in unsecured loan - you can't reposes the knowledge in the way you can reposes a house or car.

Add to that the people are young and there is a huge incentive to declare bankruptcy on the day you graduate from Harvard owing $250K - the  only penalty would be having to wait  a few years before you can get a mortgage. So to cover themselves the lenders would have to charge extremely high rates to account for the fact that almost everyone would default

edit: One objection is that it would harm your career prospects in some professions, not sure if this is true.
Go to work for a Wall St firm explaining to them how you financially engineered your way out of paying for a Harvard law degree and you probably get made a VP! Like the apocryphal story of the Harvard law school top graduate who sued them on the day of graduation for his fees back.  If he won he got the fees, if he lost it proved what a poor job they had done of educating him and so he should get the fees back ;-)

[Kaspian]

I think people would take their financial, health, automotive, relationship, vice, and all other life decisions much more seriously if we still had debtors' prisons.   I'm not saying bankruptcy's an easy way out, but comparatively speaking--it is.

[mydogismyheart]

Ist it true that personal bankruptcy doesn't work with student loans in the US? And if yes, what law makes that possible? I mean you could go ahead an say "yeah, doesn't work for house credits either" and then "okay, credit card debt neither..." etc...

They can repossess your possessions but not your education.  They will take your house, your car, and I have even seen them back moving vans into people's driveways and take everything out.  Yes, I have personally seen this on a neighbor's home.  But if they can't take your things then they will come after you for your money.  This is why you can't get rid of a student loan.  No one can get rid of a student loan in a BK.  I have also seen parents who co-signed forced to pay back when the kids did not (or could not) even upon death. Nope, those student loans get paid.  That is why they are one of the most evil loans there is.  That and any back taxes or liens.  Anything that you might owe the government does not go away.

[mydogismyheart]

I've been told that the CC companies make more money off of people with bad credit than those with good.  They count on people not being able to pay their bills properly because then they can charge late fees and higher interest rates.  They don't make any money off of people who buy some things on credit and pay it off quickly.  They want you to struggle just enough that they can take advantage of you.  They find ways to keep you hanging on.  That is why they keep giving out credit to those who should not necessarily have it. 

[Much Fishing to Do]

Student loans in the US in general can't be bankrupted b/c the govt guarantees them, which keeps interest rates incredibly low for borrowers who would otherwise be huge risks and probably not be able to get the huge loans needed to go to school now (there is no collateral & they are generally young persons with no assets and no income). 

Its like taxes, which can't be discharged through bankruptcy.  With the bankruptcy process, the government is not forgiving debts to them, just to everyone else ;-)