I agree with the principle, not the wording. Once you have settled, you owe your creditors nothing, either legally or morally.
At the conclusion of a bankruptcy proceeding all parties reach some sort of settlement, via a sale of assets, restructuring, disgorgement, etc. The settlement is legally binding. The creditors agree that their debts are satisfied in full by the terms of the settlement, and the debtor is obliged to abide by these terms.
Other than to cleanse a guilty conscience, why do people feel that they are obligated to pay above and beyond the terms of the settlement? Any time money is lent, risk is involved, which creditors must be willing to accept. And sometimes that risk bites them in the ass.
So doesn’t the moral obligations created by the new contract replace those of the old?
Stoid’s question of what bankruptcy laws are for requires some historical perspective. Bankruptcy laws are a humane attempt to reduce the burden on those who for reasons beyond their control encounter unendurable debt. In the Olde Days ™, you could be arrested for debt and thrown in a “sponging house”. Because you were in jail, you were effectively reduced to begging for money from friends and relatives. Essentially they had to ransom you. If you had no friends and relatives, well…too damned bad. I suspect that in the most extreme cases you lost everything and had to enter indentured servitude.
The laws also dictated what creditors could take to satisfy a debt. Usually they allowed you to retain enough to maintain a residence and enough of whatever was required for your profession so that you could continue to provide for yourself.
As Scylla notes, the laws also protected the creditors to some degree, allowing them to equitably divide the property of the debtor.
Note though, that until recently (credit cards and other forms of easy credit) debt was considered something fairly serious and to be avoided.
In Stoid’s case, we don’t have specific details. My response in GQ was predicated partly on her phrasing “Can I just tell them to get lost?” and partly on having read her post in the house prices thread (http://boards.straightdope.com/sdmb/showthread.php?threadid=108031) indicating that she is currently in a position to pay old debts if necessary.
I will add though, that if someone was as dirt poor as Stoid was, and merchants (?), landlords(?), credit card agencies (?) were benevolent enough to give that person the benefit of the doubt and provide goods, services, or credit, then accepting those goods, services, or credit does imply an extra degree of moral obligation. That is, if Stoid accepted all this with the knowledge that there was no way in hell she could pay it, then she was morally at fault.
And if there was some unexpected event that caused her to default on debts that she expected to be able to pay and she can now pay those debts, then I don’t see why the passage of time would diminish her obligation.
I would personally feel very bad about myself if I ever had to go into bankruptcy. If ever at that point it would be because something terrible happened, I had failed at some financial endeavor, or I was simply made unwise decisions about how to spend my money. But I don’t think it is immoral to default on a loan nor do I think it is immoral to not pay back the loan once you get back on your feet.
When a bank makes a loan they are fully aware that the loan might not be paid. The interest rate of your loan is partly determined by how likely it is that you will default. I like the concept of bankruptcy better then I do debtors prison. I’d rather not have someone forced to wear a financial millstone around their neck for the rest of their lives.
To me the morality depends on two factors: first, the party to whom the debt is owed, and second, the reason for the default.
Most debts fall into the “immoral not to repay.” I’d include any debt to an individual, or to a business where people are extending loands on the basis of personal relationships.
The exceptions are debts to those commercial insitutions that are in the business of evaluating credit risk. They’re capable of protecting themselves, and do so by charging you interest at an amount roughly equal to the risk you represent. (And I mean the risk you honestly represent. I’m not condoning fraud.)
Even commercial debts are subject to a key limitation: it’s immoral not to repay them unless you’ve suffered a reversal over which you have no control. The commercial debt system is designed with enough give in place to deal with people who have catastrophic health care expenses, loss of job, etc. That’s what bankruptcy or other workouts are for. What it’s not designed for is intentional abuse - running up huge debts with neither the ability nor the intention of paying them off.
If the debtor has a history of doing this - and the lender still extends generous credit - then I’d say a pox on everyone’s house. The debtor is still morally on the hook. But I’m not willing to hear the creditor’s pleas for an anticonsumer bankruptcy reform. Much of the orgy of credit in the 1990s was to people with bad credit histories. In return for the risk, creditors extracted huge interest rates - but in many cases, even these rates weren’t enough when significant numbers of debtors started experiencing layoffs. I have no sympathy for allegedly sophisticated financial companies that want to be saved from their own bad judgments. Any lawyer knows that bankruptcy law trumps almost anything else; finance companies that ignored that reality deserve what they get.
I don’t like the ideas of a debtor’s prison or a permant millstone around the neck either. But moral obligations and legal obligations aren’t the same thing. Not everyone who declares bankruptcy does it because of an unforeseen event, and not everyone who files for bankruptcy spends the rest of their life just barely making it. I might agree that someone who filed for bankruptcy after a catastrophe and who afterwards has little left after a reasonable lifestyle doesn’t have a moral obligation to repay those debts. That doesn’t mean I believe the person whose debts were written after choosing not to pay them, or someone who hits the lottery doesn’t have a moral obligation to repay the debts.
Doreen
To expand on this, I can simutainously feel that it is best for society if people who have buried themselves in debt have a chance to start over without lingering legal responsibility, but that for individuals the moral thing is to pay that debt back when possible–that is to say, it’s best to set up society in such a way that people operating out of amoral self-interest are what make the system work, but that individuals “should” be inspired by other ethical concerns.
Another example would be the way I understand that vote-trading in Congress is absolutly essential for the system to work, but I wouldn’t be comfortable doing it as an individual.
One, the side that says that the guy should suffer for his crime by spending time in jail, not just by having another debt to pay off.
The other side is that is a rich man were in jail and needed to be bailed out, he would be out in two seconds, while a poor man would have to sit there if he couldn’t get out on debt. This isn’t equal punishment.
When I first started making serious money, enough that I could have paid the old debt, it was at the same time that my credit report was finally clean and I could rebuild my credit. (Which I did by paying one of my old debts that had been “transformed” into a brand new credit card with an existing balance on it. Clever move!) I learned that doing the right thing would have screwed me for another 7 years because the debts, paid, would have popped right back on my credit report, showing unpaid for 8-10 years previous.
While legally that may be how one would phrase it, technically I’d call that statement wrong. I’m in the property management business. We just had our biggest tenant go bankrupt. The settlement we “agreed” to was the most we could get – period – not that which we felt would “satisfy us in full.” They left us in the lurch to the tune of $147,927.00 after the paultry “settlement” that their lawyers offered us, which, I remind you, we basically had no choice but to take. It’s not like we were in a negotiating position, afterall! [sub](and that’s not to mention the tens of thousands of dollars they cost us in repairs because of the disgusting and downright vile condition they left our property in!)[/sub]
I’m sorry their business failed. I’m sorry they probably lost money themselves. But I certainly don’t feel “satisfied in full” on the outstanding debt they left us with.
And before you think I’m heartless about people and/or businesses who experience financial difficulties, I’ll tell you that I went through a difficult period, myself, and had to make a settlement agreement with a credit card I held. However, the final agreement we made had me paying off the entire principal balance in full – all that ended up being waived were the finance charges. I agree that they should’ve been entitled to interest on the money that was loaned to me. However, I have no guilty conscience because I did pay off the entire principal balance for every purchase I made.
I just wanted to make the point that creditors may agree to settlements, but that doesn’t mean they necessarily feel “satisfied,” and certainly not “in full.”
We didn’t lend our tenants money – we gave them a roof over their heads and a place to conduct their business. They were contractually obligated to pay the rent per their lease. And by using our space and making it unavailable for us to rent to other tenants, they cost us nearly $150,000.00. We aren’t a lending institution that builds potential bad debt into what we charge our tenants in case someone bails on us. Just because their business failed, doesn’t mean I should be “willing to accept” being “bit[ten] in the ass.” That’s just a crock.
Can you clarify this? It is without question that businesses accept certain risks associated with customer behavior. From a business perspective, hopefully they are assessing the risk accurately, so that a reasonable profit is still possible. But even if a business assumes and accepts that a certain percentage of customers will misbehave (i.e., not honor their promises), that does not somehow mean the customer’s behavior is moral. If a firm assumes an unacceptable level of risk, shame on them as businessmen. Losses on loans are a part of the price of doing business. That fact doesn’t somehow make the defaulter a great guy, though.
Leaving my house in the morning means I accept a certain increased risk that a stranger might kill me on the street. I accept the risk and go to work. If I am killed during a mugging, that doesn’t make the murder moral by virtue of the fact that I knew it was possible.
Please take this not as an attack, but as a way to question this line of reasoning. Stores figure out how much loses to expect from shoplifting and they raise their prices to cover themselves. It’s expected that stores will have this loss, and their budgets and projections take it into account. Every time they let someone in the store they are accepting a risk that the person will steal. Is it therefore OK to steal since sometimes the risk bites them in the ass?
I know that’s not what you’re saying, but it sounds awfully similiar to my ear, and I bet a business owner (small S&L or Credit Union) would feel the same way.
Slight hijack, but I was wondering. If someone files chapter 7 bankruptcy then a couple of years later because he/she feels morally obligated, starts to repay some of the discharged debt. Is this legal? Does it re-new the debt in any way? Think about it.
ABC Charge card was ordered by the BK court to discharge the debt. The company took the deduction on their tax return. Now years later the debtor contacts them. Can ABC Charge card legally accept the money without court approval? The reason I ask is from what I can understand is that during the actual BK proceedings the debtor can’t favor one creditor over another. That is to say pay ABC back but not XYZ. So would this apply after discharge even if its on a voluntary basis?
Stoid, if you do agree to pay some of your old debts, make sure that none of it is reported to the credit bureaus. Get everything in wrighting. FWIW I don’t think you owe them anything. You should ask an attorney but from what I know most debts do legally expire after a certain period of time when no legal action is taken by the creditor.
But legally and technically are precisely the same thing, Shayna. Creditors may not like the nature of the settlement, but when resources are scarce, who actually does? But that does not change the fact that the creditors agree that the debt is satisfied under the law.
Hmm…this makes me wonder how good your legal counsel was. How estate funds are disbursed is hardly a cut and dried process, and there is virtually always negotiation, intercreditor jockeying for position, etc. There is a finite set of assets, but it is hardly impossible to leverage one’s claim legally. This is the point of a bankruptcy proceeding.
Hardly. By leasing someone property the lessor assumes the risks of the tenant’s inhabitation of the space, many of which he is able to pass on the the tenant himself by means of the lease. And since it is legal and proper business practice to assume or reject unexpired nonresidential real property leases in bankruptcy, and any landlord should know this, he is assuming a risk. That’s life, really. Doesn’t mean you should roll over every time someone bails on a financial obligation, but you also should not be surprised that it does happen.
I would be happy to clarify, as I did not make my point very clearly at all.
Bankruptcy or default certainly does not make anyone great. But I believe that moral obligations to repay the debt in full are wiped by the settlement agreement, as the morality of the new contract replaces that of the old. I suspect that some people, who argue that one should pay the debts above and beyond the settlement, believe that default somehow betrays and irreperably harms the lender.
In a personal loan between friends and family, I would say that this is certainly the case. But in a business loan, well, nonpayment happens and the lenders are usually prepared for it. So one should not create a false moral obligation to repay above and beyond the therms of the bankruptcy settlement based on some perceived harm to the lender.
No, of course not. My remarks to Bob Cos should satisfy this line of inquiry as well. Just because lenders are prepared for default does not make it acceptable. Likewise because they are prepared, bankrupt parties should not base their moral obligations to them on some perceived harm.
Which doesn’t change the fact that “doing the right thing” would have STILL been the right thing to do. Nobody says that doing what’s right is necessarily easy.
The ‘contract’ entered into when a person files for bankruptcy is not one which any reasonable lendor would enter into of his own free will. It is the best that can be made of a loss situation.
The free will contract was the original agreement between the lendor and the borrower, in which the lendor supplied some good or service, and the borrower promised to pay at a later date, at an agreed rate of interest. The ‘contract’ of bankruptcy is coerced, in that the lendor cannot reasonably expect to collect on the debt, and is therefore trying to make the best of things and cut his losses.
Suppose someone broke into my house, and stole my TV, VCR, and silverware, and was later arrested. He had sold the silverware and TV to buy drugs, but he still had the VCR. If I accepted my VCR back, I would not consider that thus the crime was wiped out, and the person should go free, simply because it was no longer possible for me to recover all that I lost.
I also agree with those who reject the notion that just because businesses expect losses, no fault is incurred by those who cause them. The suffering caused by those who default is spread widely, in higher interest rates and business failures.
Bankruptcy is an attempt to limit damage, to creditors and to defaulters. Sometimes shit does happen, and I am sure even people who act in good faith go under. But even under the best circumstances, it is a violation of a person’s promise (to repay), and a form of indirect theft. And to answer the OP, legal obligations are different from moral ones. The one is far easier to discharge than the other.
Of course, I speak as the son of a small businessman who lost non-trivial amounts of money to those who would not/could not/at any rate did not pay their debts for the services my father supplied in good faith.
As is often the case, an interesting thought exercise would be to decide under what circumstances you would agree that people should decide not to pay money that is owed to you? And then to consider if the positions were reversed. Would you accept it if someone said "Oh well, I just got in over my head. You can just whistle for your money - even now if I can afford to pay you back. "
Maeglin, my problem with this is that I odn’t see how it is different from when I borrowed twenty bucks from my mom ten years ago and never paid it back. Now, my mom makes six figures and twenty bucks is no big deal to her: certainly, there is no harm done. Furthermore, she probably knew when she loaned it to me that there was a good chance I wouldn’t pay it back (I was a young teen, after all). To me, that is exactly the same as what you have described in your example, and I still think I should pay my mom back. The fact remains that I won’t, because it was a long time ago and as a student $20 bucks is still alot more money to me than it is to her. I am failing to live up to my own moral principles here, just as I fail to live up to them when I put off visiting my MIL, when I failed to continue tutoring an at-risk little girl after my course requirement was satisfied, and when I decided not to bother walking all the way back into the store to return a pack of gum when I realized I had inadvertadly forgotten to pay for it. I can live with myself after this, and if I defaulted on some loans I could probably live with myself if I failed to pay them back before I, say, moved to a nicer neighborhood. But I wouldn’t call it the most moral choice, any more than not paying back my mom that twenty is the best moral choice.
This is not necessarily true at all. If a lender so chooses, he can structure a work-out program with the distressed borrower to recoup all of his losses, including interest. It is usually the choice of the lender to take what money he can and run. If a lender wishes to see a small (or large) business through the restructuring process, a fortune can be made, especially if the business (or person) declares bankruptcy before he has already liquidated most of his assets.
No one ever actually made this argument. I believe it was imputed to me quite wrongly.
I cannot agree that voluntary bankruptcy conducted without fraud is a form of indirect theft. It is no more theft than charging interest on a loan.
If the moral obligation is more difficult to discharge, where does it come from? The original obligation is incurred by the original lending contract. A new agreement, the bankruptcy settlement, supplants this original contract. The borrower may be too proud to let go of the original agreement, but I do not believe that one’s pride is a very good standard of one’s moral obligation.
After all, what loan document does not contain provisions for bankruptcy or default? The game changes entirely when one loses the ability to pay.
And I speak as the son of a small businessman whose partners defrauded him for a princely sum and failed to pay their debts and state judgments. Now I work in bankruptcy law.
It is not particularly interesting at all, I don’t think. I am not in the business of lending money. If a friend is in need, before I set him up I ask myself if I could write the “loan” off as a gift without rancor or serious hardship. If the answer is yes, then I have no trouble at all lending a friend the cash, and no trouble at all if he cannot repay me.
And if someone screws me, well, live and learn. I try to be scrupulously careful to whom I lend any money.
Manda Jo
The fundamental difference is that in your analogy, there was no later agreement whereby your mother agreed that the debt was satisfied if, say, you could pay her back $5. If you owe her the money, you owe her the money. That really is the bottom line. But if she agreed to write off 75% of it, and you have paid the required balance back, I do not believe that you owe her the rest. Your pride may insist that you pay, but pride is not the source of moral obligation.
You know, I find this insulting. The insinuation is that if your attitude is clear, common-sense and straightforward, that mine isn’t, since I said I disagree with you.
I have absolutely no intention or desire to discuss this with you further, other than to say that our legal representation was top-notch. We got what we could, not what was “satisfactory” to us. Come talk to me when you’re out $150,000.00, ok? In the meantime, there’s no need to address or subtly insult me further, as I’m done even reading this thread.
