Exactly, I really don’t like this argument that defaulting on debts is fine because the banks all do nasty things anyway. In modern society we deal with lots of large (and small) corporations all the time, and many (most?) of them occasionally behave in despicable ways. That doesn’t mean I have to also behave badly.
Most credit card agreements break down to three terms
[ol]
[li]Borrow money and pay it back during the grace period for no additional fee.[/li][li]Borrow money and pay it back after the grace period and pay an additional interest charge.[/li][li]Don’t pay it back, and we’ll still come after you for the money, and also make sure nobody else ever loans you money again.[/li][/ol]
I don’t see what is unethical about the borrower choosing option 3. It is part of the agreement. In the situation described in the OP, I don’t think it is smart, but not unethical.
The agreement with the credit card company is NOT “pay it back no matter what.”
But capitalism is based on competition. So you have to reconcile competing with others (always with certain zero-sum aspects, my gain is your loss) with being an ethical participant of society.
And I think the way to do that is what I described above - we should agree as a society that the ethical input to our free markets should occur at the level of government regulation, that all free markets should be subject to sufficient appropriate regulation to protect society’s overall interests and to be fair to all participants. Then within those regulated markets people should compete actively and freely to further their own economic interests, concerned only about following the law, not constantly worrying about whether specific actions within that market are ethical.
I mean, I’m oversimplifying. Regulation is never perfect, and laws aren’t always easily enforceable. So I’d certainly say the world (and the markets) are better if we try to be honest and follow the intent of the law, and don’t (say) try to rip of a small shopkeeper on a word-of-mouth agreement just because he isn’t going to sue us for $20 and we can get away with it.
But I think we have to recognize that there’s a tension between ethical behavior and free-market capitalism, and we need clarity on how to approach that. And certainly, “other people are doing unethical stuff so it’s okay if I do” is not workable.
As I said, and you say later in the same post, the out may be part of the additional laws under which the agreement is made. The agreement does not have the consumer’s interests in mind, the consumer will have to know their own rights that are not spelled out in the agreement.
Defaulting on unsecured debt certainly does have repercussions. In many places they won’t be able to take your house, but they probably can garnish your wages, and it goes on your credit report, with all of the repercussions associated with that.
Defaulting on debt is not the same as stealing. You can argue it adds up to the same thing, somebody gets something for free, but in practice, that is not at all how it works. If I steal some avocados, and never get caught, I got them for free. If I just ghost my credit card company, I will still suffer consequences, perhaps up to them suing me, winning, and seizing any of my assets they can find. Now, ghosting your lenders IS unethical, because that is not how the rules are setup. If I want to avoid the debt ethically I have to negotiate a private deal with the credit card company, or follow the bankruptcy laws.
I think I understand part of the logic in thinking that defaulting on all debt is unethical. It’s the idea that the defaulter is somehow winning. I don’t think that’s the case at all. If bankruptcy was a magic wand that let you clear all debt and start over at the beginning, then sure, that would be a pretty big win. It is not. You still have to give up everything that is not tied down by other laws, and get to walk around with a big sign warning others that you are not a good risk. Better than debtor’s prison, but not exactly winning.
Just as an aside, when you first order checks you can request that they start with any number you’d like. When I opened my current account, I had them start at check #801, to avoid any issues like this.
And this is the problem with your thinking. You’re assuming the credit card company is this cigar chomping, honest, all American bunch of guys who loaned you the money and you let them down. Thus anything but paying the debt back - which includes not just the principle, but if you lose your job for a prolonged period and can’t make payments, it’ll also be ridiculous penalties and a penalty interest rate of about 30-40% - is you being a commie sleazebag.
This isn’t the truth. The credit card companies are shysters as well. They are scumbags who are committing every unethical thing they can get away with - including sometimes flat out breaking the law. The only thing holding them back from being really sleazy are laws.
Well, if you get into a scenario where after paying your living expenses, your take homes times 60 is less than your debts (aka you owe more than you could pay back in 5 years putting all your disposable income to your debts), you can get out of the debt with bankruptcy. It turns out I am not presently in that situation - but remember, I have to compete with jobs with a couple hundred thousand a year H1Bs as well as people younger than me as well as millions of competing software developers in India.
I could easily lose my present job and not be able to find a replacement for a prolonged period. If that happens, I would meet the financial criteria for a chapter 7 and I guess I’d consider it.
It is not the same thing as stealing, as with stealing, you were never given any permission to take what you took. With default, you are given permission to take stuff, because you promised to pay for it.
Take out the middlemen and time and laws for a second, as those tend to obscure what is actually happening here. If you bought those avocados, but you paid for them with a check you knew would not clear, is that stealing?
I think that there is intent involved in the ethics. If you were trying to use credit responsibly, and shit just didn’t go right and you need a fresh start in order to get out from under things, then that is one thing. If you go run up a bunch of charges that you know you will not pay back, that’s a bit different.
The law treats the two the same, as it is hard for the law to judge intent. But the law depends on most people acting ethically. If everyone went out and maxed out their credit cards and lines of credit for bread and circuses, then filed to have those debts written off, how well would that work out for the economy?
Using bankruptcy as anything but a last resort be regain financial solvency that you did due diligence to prevent is, IMHO, unethical.
It is more that the defaulter has shifted their burden to society. It is something that society can accept, from time to time. But it is not something that should be encouraged, as society cannot function if everyone is dumping their debts.
Well, yeah. The CC companies don’t just eat that debt themselves, they pass those defaults onto the rest of us in the form of higher interest and merchant fees.
In your case the court would probably order a chapter 13 rather than a chapter 7, meaning the court would setup a payment plan, and order you to make deposits into a trust and a Trustee would make your payment for the next three to five years. The court might, notice might, stop the interest on your unsecured debt, IE credit cards, or may lower them or discharge a portion of the debt. If you have the means to pay your unsecured debt at the current interest rate, odds are the court would make you pay the full amount, and a bankruptcy would should up for every on the credit report.
Really bankruptcy should be the last resort. It’s not like you didn’t spend the money.
Actually my argument here is less about “you shouldn’t get things for free” than “we can’t have nice things if everybody acts like assholes.” But also - if you promise to do something, then you should do it. That good faith is what allows us to have amazing inventions like credit, insurance, and fractional banking. Without the assumption of good faith we can’t have all that good stuff. That’s why I put credit abusers in the same bucket as anti-vaxxers.
Note that I’m not condemning accidental bankruptcy or default. Sometimes our best efforts aren’t enough, and society benefits when we agree not to enslave people for mistakes or just plain bad luck. That’s why credit abusers are assholes, because it makes it harder for us to have good things like reasonable credit and bankruptcy protection.
Just as a minor nitpick, that last one may not be a good example: I believe the burden of proof in this kind of tax issue is on you – you need to prove the the IRS that you did use it for business rather than them proving you didn’t. So legally, not having records means you lose if the IRS decides to fight you about your deductions for business use.
I’m saying that if the others act unethically, using what amount to new rules (e.g. spending millions on teams of statisticians who figure out how to get customers to make mistakes), and thereby trick you into getting into trouble, so that they can profit off of what were originally conceived as punitive measures, in what amounts to a battle – then it would be wrong to apply the old rules to consumers on one side of the battle and new rules to lenders on the other side.
And I am saying, that no matter how you justify or rationalize it, it is the responsible consumers of credit who will pay for those defaults. So, unless you can show what I did to trick someone into getting into trouble, then I do not deserve to have it put on me.
I am perfectly willing to pay somewhat higher interest and merchant fees in order to assure that we do not have a system where someone underwater just needs to drown, and I am even willing to absorb the consequences of unwise decisions.
But when it comes to deliberate actions, “I’m just taking back what was taken from me*”, it is unethical to foist your obligations upon others, even if there was some other party out there somewhere that also did something unethical.
*said to me by a roommate after I caught her stealing from my wallet. She admitted and agreed that I had never taken anything from her, that I had not done anything to harm her, or to deserve to be harmed. But, she felt as though she had been “taken from” by others and in general and she was going to take it back.
Anti-vaxxers absolutely do accrue personal benefit. They get the benefit of herd immunity while sacrificing nothing for it, while congratulating themselves on how clever they are. Granted that credit abusers can potentially gain more, but the moral calculus is exactly the same.
You’ll know if an employer runs a credit check because they’ll ask you to sign an authorization form. And if an employer makes an adverse decision based on a background check they are required by law to inform you. The good news is that only about 1 in 3 employers (of those that run background checks) include credit reports in their background checks. And many of those only check new hires going into managerial positions or those that deal with a large sum of cash or finances.