Is bankruptcy ethical?

Is Bankruptcy Ethical?

What is a law or code of laws if not the collective voice of a society taking a distinct position on one of the many human situations it’s members may commonly or uncommonly find themselves in the midst of? Debt, war, divorce, business dispute, controlled substances, banking regulation etc. Let’s for a moment put aside the slightly more peripheral, and quite often legitimate, argument that our federal government has amassed such a boundless jurisdiction that it’s puppet beauracratic agencies couldn’t possibly enact “rules” that mirror in any way the concensus on Main Street USA. To be sure, most don’t care about or pay attention to EPA’s latest rulemaking initiative. In fact, most would be so lost in a sea of acronyms that they could never really get to the point of the newest decree (perhaps consult the acronym czar).

But I digress. The point is to say that our most basic, foundational laws reflect our most basic, foundational values. I believe that the bankruptcy code can be included under that category of laws nearest and dearest to our collective hearts. This is not to say that people across America rise every day and immediately give thanks for federal consumer protection legislation. However, the bankruptcy code is an area of law whose existence sparks very little controversy. The basic concept of debt relief is well accepted across region and socio-economic class. Even the Old Testament calls for debt forgiveness every seven years.  Residents of Northern California and Utah may not see eye to eye on drug laws, procreation issues or immigration, but it’s a safe bet that the majority in either locale believe an individual burdened by unmanageable debt should have the chance at a fresh start.

Furthermore, in the spirit of truly reflecting our collective societal outlook, the bankruptcy code incorporates some of the views of those who believe “bankruptcy” should be a four letter word. The right to debt relief is not absolute. Many of the same people who agree that a hard luck case should be permitted to get out from under crushing debt, also believe that cheating the system should be punished. In recognition of this widely held view, the right to a fresh start under the bankruptcy code is afforded only to the “honest but unfortunate debtor.” Fraudulent activity is punished under the code, and proof of less than reputable intent is grounds for denial of the very relief sought. The code’s simultaneous ability to alleviate real financial burden while rejecting actions undertaken in bad faith, further strengthens the ethical legitimacy of filing bankruptcy. If the code allowed for a declaration of bankruptcy in every instance, under all circumstances, it would serve to undermine our collective beliefs rather than strengthen them.

The bankruptcy code reflects the collective belief of our society, that under certain circumstances, we all get to start over. Such foundational laws, which strike at the heart of our societal framework, and operate to support it’s values, are presumptively ethical. Filing for bankruptcy is therefore, presumptively ethical.