The morality of bailing on debt...

Great Debates
1

In this thread, which I started, the question of whether it is moral to bail on one’s debts arose.

One poster, Finagle, seemed to take the position that to do so is basically unethical, or rather, that should the time come when the debts can be repaid, that the moral thing to do is to do so.

Please read the thread for detail, it’s not very long.

Basic debate: is there a ** moral ** difference between simply defaulting on your debt and taking the consequences of worthless credit (what I did), and filing bankruptcy, which I feel is identical in effect, it simply carries official government sanction, which has been paid for. (A route I was unable to take because I could not afford to.)

Furthermore, is one morally justified in never paying those debts, or should one feel obligated to pay them eventually, if the means become available? Consider the fact that paying the original creditor is no longer possible once a certain amount of time has passed, the debts are sold to companies for pennies on the dollar.

Dopers?

2

What is “moral?” Right now when I think of courtrooms and people being tried for murder, I don’t think they are tried on moral grounds (whatever that may be), but on legal grounds. FWIW at this obscene hour…

3

If one owe something, I believe one is morally obligated to give it back, irrespective of the legalities. Defaulting on a loan out of financial difficulty is an unfortunate circumstance that just happens sometimes. Deciding not to pay a loan that could be paid just because it was a long time ago is basically theft.

If one takes something from someone with the understanding that it is a loan, one should give it back. That, to my mind, is a very simple and basic rule of life. It doesn’t matter if you’ve owed it for a year or twenty years; it is not yours and it is unethical and immoral to keep it. It doesn’t matter if the party owed is a creditor* like a phone company or a bank, or a relative, or a friend, or whomever. IF you owed your Aunt Rita $1000 and couldn’t pay it back, would you stop owing it to her after a certain number of years?

4

The government accepts that sale as a valid transaction.

BigBucks Finance realizes that the odds are pretty low that they’ll ever get the $1000 you owe them, and feels it’s not worth the effort. Acme Collection Agency also realizes that you won’t or can’t pay, but they’re willing to put some effort into it, if they think they might make a profit on it. So BigBucks sells your debt to Acme for $100. BigBucks is upset that they have to write you off, but at least they lost only $900, instead of the whole $1000. Acme has some pretty talented people, and they usually collect about a quarter of their debts, so they figure they have a decent chance of making about $150 (=$250-$100) on you.

You now owe $1000 to Acme, just as surely as you had owed it to BigBucks previously. The fact that Acme is not the “original” creditor is irrelevant. They can buy and sell your debt without your consent, because it never belonged to you to begin with. They cannot change any terms of any loan, because that did require your consent. But the debt itself can be bought and sold as if it were a loaf of bread.

5

Of course, the moral thing to do is to pay it back. Consider how you’d feel if you were owed the money.

You lend your worthless low-down brother-in-law $10,000 for a down payment on a house (yeah, I know that borrowing the down payment is a no-no, but bear with me for the sake of argument). Unfortunately, the WLDBIL squanders the money and it’s gone. Because he’s an unemployed bum, you doubt you’ll ever see the money again. Maybe he even formally files for bankruptcy.

Fast forward 15 years. Your WLDBIL somehow stumbled across a formula for low-cal pizza. Now he’s known as the Low-Cal Pizza King and has a mansion and a yacht, vacations on the French Riveria at least five times a year and gets his hair done at one of those hoity-toity salons that wouldn’t even consider a customer whose net worth wasn’t eight figures. Wouldn’t you like to see your $10,000 back (maybe even with a bit of interest?). Sure you would.

Just becuase the money is owed to a big corporation, rather than an individual, doesn’t make it any different. Corporations are owned by people just like you and me (whether they be privately owned, or owned by shareholders). You have a moral obligation to pay those people back, just as your WLDBIL has to pay you back, even if not legally obligated to do so.

Zev Steinhardt

6

I agree that you are responsible for your own debts. A slightly trickier question is whether or not you are morally responsible for a family memeber’s debts. Senario:

Your (unmarried) mom dies. she has no money, and several thousand dollars worth of credit card bills and another ten thousand dollars worth of medical bills. She has a term life insurance policy of $50,000. That 50K goes straight to the beneficiary----it’s not part of here estate, if I understand correctly.

In this case do you, as the beneficiary of the life insurance policy, have any moral responsibility to pay the hospital bills out of that policy? To pay the hospital bills?

7

I would say, no. One does not have a moral responsibility for the debts of relatives. Repayment of debts should come out of the estate of the deceased. Beyond that, however, no.

It starts getting tricky when you try to divide up different types of debt. Why should the debt to the doctor be treated differently than the debt to the plumber who came by and fixed her toilet the week before last? They both gave of their time and rendered professional services. Why should their debt be any different than the debt to the grocer, to the credit card companies or the debt to the neighbor down the street who lent her $10 last week? Debt is debt, regardless of how it is accumulated, and all owed parties should persue their right to collect on their debts to the full extent of the law. But, in the end, if I have no say in how my mother spends her money, then I have no moral responsibility for her debt.

Zev Steinhardt

8

I’m not one to get too hung up on morality. I’m very selective with my moral stands.

In this case, according to Krispy morality, once the debt has been either discharged (via bankruptcy) or is beyond the statute of limitations, then, in addition to having no legal responsibility to pay, you have no moral obligation to pay either.

The way I see it, issuing credit is not altruistic. The lender didn’t do it out of the kindness of their heart. Their intent is to earn as much profit as possible.

As long as you, the individual entered into the agreement with pure intentions of repaying the debt, any set of circumstances that occurs through no fault of your own that affects your ability to repay eliminates your karmic debt.

9

Well, I couldn’t disagree with you any more, Krispy.

Obviously this is a matter of personal approach and morals here. I don’t think we can find a place of agreement. But let’s try anyway. (Paging talmudic scholars! Clean up on aisle GD!)

I would feel that, regardless of the legal issues (exoneration or what have you), I had a moral obligation to make good on the debt. I incurred the service or good, I should pay for it. It’s a matter or personal pride that I believe to be important to me.

As to how it fits someone elses morals, though, that’s up to them. Note that I would judge harshly against someone who used the legal system to defend themselves here. That smacks too much of self-justification to me.

10

Well, this is interesting.

So all of you (except Krispy) think that the millions of people who have filed bankruptcy in this country and then gone on to recover from what brought them there, purchased new homes, new vehicles, etc. should actually have instead gone back and paid off all the debts that had been discharged in the bankruptcy?

Then what is the point of bankruptcy? The law was intended as a fresh start, not a delaying tactic (apart from the Chapter-whatever-is-the-restructuring-the-debt). Or I guess you all think that bankruptcy shouldn’t exist?

Interesting. I had no idea there were so many anti-bankruptcy folk. (Although I myself think that bankruptcy is grossly abused, particularly by the wealthy. But it’s a lifesaver for many.)

stoid

11

So because an obligation does not exist legally it does not exist morally? Now I understand why some people want to legislate morality. Sorry, I don’t agree and I think it is very antisocial to think that way. I consider I have a moral obligation to repay my debts regardless of whether they are due legally or not. I consider I have a moral obligation to help those less fortunate but I hate government social programs. I believe the government should not force me to do what I think is my moral and ethical duty. Maybe legally you can not be forced to support your parents in their old age. Is it moral though? Sadly to many people do abandon their parents and now I see why.

My siblings cheated me out of my share of the inheritance and they did it by legal means. Does that mean it was ethical?

If you can’t tell the difference between legality and ethics then you have no ethics.

12

Yep. I encountered a few more of them recently in a GQ thread. Some finacially insolvent Doper posted to ask about his legal options. I answered from experience with factually correct information concerning judgements and bankruptcy and was accused of malpractice!

One Doper in that thread even insinuated that the poor author of the OP might be arrested! Another incorrectly stated that the courts would be making all their financial decisions for years to come after a bankruptcy.

Sheesh.

I think the mindset of these people is:

“I pay my bills, so you should pay yours!”

They hold this belief without serious consideration of the actual circumstances that some people face.

For instance, even with health insurance coverage, some medical conditions like cancer can end up causing hundreds of thousands of dollars in debt. Sure, you were the benificiary of those chemo treatments, and should pay the charges if you have the ability to do so…but if you don’t, don’t sweat it…that’s what bankruptcy is for.

Before you judge the morality of others, walk a mile in their shoes.

13

A close relative of mine did declare bankruptcy many years ago. He feels that this gets him out of the legal obligation, but not the moral obligation. The bankruptcy papers list how much he owes to each creditor, and he does hope to repay it if he ever can afford to do so. (Meanwhile, he’s having trouble keeping up with his new debts, so I don’t nag him about the old ones.) He even showed me a first draft of a letter which he plans to send to those debtors if he does ever win the lottery.

14

Stoid, I think that maybe your bafflement comes from the fact that you tend to view things in a pretty black and white manner: there is a right thing to do, and a wrong thing, and not a lot of leeway availible for people who chose to do the wrong thing out of selfish motives.

Ethically, you should repay you debts. Many people don’t. That dosen’t mean they aren’t exemplary people in many, many other ways, raising good kids, contributing to society. It dosen’t mean you have to cut them off, shun them in public, etc.

Many people fail to live up to their own moral standards, and many people manage to become reconciled to that. Once you’ve reached that point, it’s pretty easy to extend that reconciliation out to others.

I suspect that when the other posters here say “Defaulting on loans and forgetting about them once oyu are back on your feet is immoral,” the unspoken rest of the sentance is not “and people who do so are immoral and make me sick”, but rather “I’m sure glad I haven’t had to face that choice.”

15

I’m not anti-bankruptcy. I understand the need for bankruptcy and agree that for some people it may the only option out of debt.

However, I would hope that these same people, if they later had the means to do so, would voluntarily repay the debt they owe. Even though the people whom you owed are out of luck as far as collecting their debt goes, I’m still sure they’d like to see their money back, just as I’m sure you’d like to in the example I provided above.

Zev Steinhardt

16

I hardly think anyone is arguing that it doesn’t remove the legal obligation. Though I wouldn’t mind if an attourney chimed in about whether bankruptcy is supposed to provide a ‘fresh start’ or simply protection from creditors. If the ‘fresh start’ approach was the actual intent then where’s the down side? Aren’t there downstream complications from a declaration of bankruptcy?

But in terms of morality…

The fact remains…you used that service. Should it now be free?

I believe that I would feel a strong desire to make the books balance (in my soul…if nowhere else) if I ever declared bankruptcy. I honestly don’t think I could do anything else than at least TRY to pay it back.

That doesn’t make me ‘anti-bankruptcy’. It’s a necesary part of the American financial structure. But it does make me ‘anti-walt-awy-from-debt’.

17

Bankruptcy allows the debts to be legally wiped out, but they still remain on the ethics books. Yes, it is a fresh start. Creditors will no longer hound the debtor. He can now breathe easy and sleep well at night. And if and when he himself feels that he can spare enough to repay those who lent him money in good faith, then he must go beyond the letter of the law, and return that good faith in kind.

Of course, you’ll see nothing about this in Bankruptcy chapters of the law textbooks, because according to the law, you really are totally free and clear. But you will see this in books about ethics, because ethically, the debt never really goes away.

(Similar to what Zev wrote, the difference between legality and ethics is that one volunteers to do the ethical thing.)

18

This is one of the weirdest false dilemma posts I’ve ever seen anyone write on the SDMB. “You people believe you’re morally required to pay back debt? You must be opposed to bankruptcy law!” Where’s the logic in that conclusion, Stoid?

As to the prupose of bankruptcy, bankruptcy laws do not exist just to let you get out of debts. The purpose of bankruptcy law is to allow for a debtor to resolve debts by having his assets divided among creditors. You did not ask about the legalities of debt, your OP specifically asks about the MORALITY. Since you made a distinction between the two I assume you know the difference between legality and morality, so why you dragged legality into it when people weighed in with their honest opinions about the morality of the sitution is beyond me.

In any case, what the heck does bankruptcy law have to do with the simple, straighforward fact that you should give people what is rightfully theirs? You don’t seriously believe that filing a bankruptcy motion gets you off the hook on debt, morally speaking, do you? What if YOU were owed the money, and you were really strapped for cash, Stoid? Would you think it was just hunky-dory for your no-good brother in law to just not pay you the money?

This has nothing to do with being strapped for cash. If you CANNOT pay your debts, you can’t pay them. You can’t give people money you don’t have. Sometimes that happens; there sometimes comes a time when it simply becomes impossible to meet your debts. It’s part of life, and that’s why bankruptcy law exists; because sending people to jail for being in debt is stupid and counterproductive. But if you get out of your hole and CAN pay your debts, it’s the ethical and moral thing to do.

19

pro’lly on Mexican Fat Burners [sup]TM[/sup]

On the OP, I hear a lot of fudging/ducking and dodging, with the bottom line of ‘yes, I really owe the money’.

I’m not clear on the legal differences between defaulting on loans and declaring bankrupcy (the only thing I know about the latter is when my ex declared bankrupcy, he had to sell off pretty much all he owned to satisfy as much of the debt as possible).

I remember a woman I knew, working part time, low wages, got a small jeweler (not my dad) to sell her a big ole’ gold /diamond ring on credit (she came from a well known wealthy family). She made paltry payments monthly, then when the business failed a few months down the line, excitedly exclaimed “oh, good, now I don’t have to pay it all off!”. and kept the ring, having paid a grand total of about 10%. Karma worked in her case eventually.
(**yes, I understand that the store owner took a risk giving her credit, but she came from a very, very rich, influential family, and I’m sure that there was a certain amount of 'well my family does a lot of business in this town sort of thing).

20

As I see it, either a person honors their commitments, or they do not. That aplies in all things.

I think that if circumstances make it impossible for one to honor their financial commitments, than that person is morally obligated to file for bankruptcy.

With bankruptcy, there is at least full disclosure, and the strong possibility of partial recovery of debts or property by the most senior or deserving creditors. By not filing bankruptcy, your creditors may endure additional costs trying to collect an unpayable debt. The way I see it, you owed it to your creditors to do it right.

It is just about impossible to be too poor to file for bankruptcy. One can do it themselves, and there are many legal aid services which will help you do it. Many law schools set up a community aid foundation where a law student will help you do it for free. The actual filing can be done for less than $100, IIRC, and there are ways to get that waived. Many creditors will even assist you financially in the filing, as well as many of the free credit advising services. If you get aid in that, that may be one of the debts you may be required to pay after your bankruptcy.

What you term as “wealthy” people who file are actually just regular people with significant interests. When they’re defaulting on their debt, it is crucial that they file properly, so that employees receive severance and benefits, suppliers can reclaim inventory and senior creditors get first crack at what’s left.

To not file is the abuse.

Once you’ve filed, I don’t think you legally owe those debts, or morally owe them.

Once you’re back on your feet again you may have another moral obligation. You have been provided relief which has allowed you to recover. While you shouldn’t pay back your original creditors (who have settled the debt,) it may be morally incumbent upon you to redress the system so to speak. If one feels that way, there are lots of ways to help. Becoming a credit counselor or aiding a credit counsel financially is a good way.
I think that not filing for bankruptcy when the situation called for it was wrong.

Those debts needed to be addressed, if only to notify the creditor of your permanent inability to pay. Since you have not done so, the implication was that they would be paid.

My advice is that would be a good idea to speak to a credit counselor and determine your legal liability for those past debts, and how they should be addressed.

The moral obligation that you may or may not feel is yours entirely to deal with to the best of your abilities.

But, I do feel that simply ignoring the debt was wrong.