In its relentless attack on American-style bankruptcy, the credit industry makes the same tiresome and disproved claims of the past as it lobbies for special privileges and attempts to shame people out of filing bankruptcy. You need to be aware of their claims and understand why they're full of baloney (with a capital "B"). Bankruptcy is an economic decision, not a morality issue, and you needn't be deceived into viewing it as anything else. The following sections look at some of the usual red herrings that are cast about by the creditors' lobby.
Bankruptcies are at epidemic levels
People file for bankruptcy because they're in debt. The more debt there is, the more bankruptcies there are. Well, duh! It really is that simple.
When compared to the level of borrowing, the rate of bankruptcy has remained fairly steady. In 1977, 74 bankruptcies were filed for every $100 million of consumer debt. In 1997, 73 bankruptcies were filed for every $100 million of consumer debt.
Bankruptcy isn't the cause of debt but rather is the result. And it isn't the disease but rather is one of the cures. Restricting access to bankruptcy court won't solve the problem of debt any more than closing the hospitals will cure a plague.
People who go bankrupt are sleazy deadbeats
The credit industry stereotypes folks who file bankruptcy as worthless deadbeats taking advantage of a loophole-ridden legal system to dump their moral obligations on the backs of the rest of us. This stereotype is false, discriminatory, and manifestly unfair. Sure, bankruptcies have increased dramatically along with consumer debt, but it isn't because of some evil substrata of our culture.
From the 1970s to the 1980s, filings virtually doubled. The pace continued to increase in the 1990s, with bankruptcy filings setting new records year after year, even with a seemingly robust economy and near full employment. In fact, by the mid-1990s, bankruptcy filings, on a per capita basis, were running some eight times ahead of those of the Great Depression.
And who are these people filing for bankruptcy? Chances are they're your neighbors regardless of what neighborhood you live in. Bankruptcy is an equal opportunity phenomenon that strikes every socioeconomic bracket.
In any case, the image of the sleazy, deadbeat bankruptcy filer is a phantom and a scapegoat for irresponsible lending. The bankruptcy filer can be more accurately described as an ordinary, honest, hardworking, middle-class consumer who fell for aggressive and sophisticated credit marketing techniques, lost control, and unwittingly surrendered his financial soul to the devil that is debt.
Bankruptcy is the easy way out for folks who can pay their bills
Creditors have been making this claim since the 1800s, and it's as demonstrably wrong today as it was back then.
In recent years, the credit industry funded several studies — a handy euphemism for propaganda, the more accurate description — that supposedly supports their argument. Every one of these self-serving reports has been debunked by independent sources. Every single one. Several of these studies were even discredited by two financial arms of Congress, the General Accounting Office and the Congressional Budget Office.
Bankruptcy threatens the ethical foundations of our society
Gee, you'd think that bankruptcy was the greatest threat to apple pie and motherhood since Elvis Presley and bell-bottom jeans!
Credit-card companies furiously push plastic on virtually anyone willing to take it. At present, more than one billion credit cards are in circulation — that's about a dozen for every household in America. Lenders mail out billions of credit-card solicitations every year. Low- and moderate-income households, high school students, and the mentally disabled are popular targets of lenders.
According to the Administrative Office of the United States Courts, consumers between the ages of 18 and 25 are one of the largest growing segments of new bankruptcy filers. This statistic is disturbing. The main culprit for this trend is the readily accessible credit that is dispensed with abandon to students and other young people who lack the maturity and resources to handle debt.
Anyone with a brain can figure out that extending credit to irresponsible, immature, or even mentally incompetent people is kind of dumb (not to mention morally questionable). But creditors are more than willing to ignore the dangers of tomorrow so that they can reap exorbitant interest rates today. They're counting on — literally banking on — your ignorance of the situation. They encourage robbing Peter to pay Paul by using credit-card advances to pay off credit-card bills. They convince many middle-class consumers to bleed all the equity out of their homes through aggressively marketed home-equity loans — with much of it going to finance consumable products (mall junk) rather than the homestead of the American Dream. That hundreds of solid, middle-class folks find themselves in bankruptcy court isn't surprising.
But why, in the face of increasing credit-card losses, does the credit industry continue dispensing credit with utterly reckless abandon? The answer is simple: Because it's profitable . . . extremely profitable.
Honest folks pay a "tax" to support those who are bankrupt
That honest taxpayers are supporting people who are bankrupt is nothing short of an outright, bald-faced lie. The theory, espoused in press releases and by lobbyists, is that hundreds of thousands of Americans routinely ignore their obligations, intentionally or recklessly drive up their debts, and then declare themselves insolvent, stiffing creditors, and ultimately, every God-fearing, bill-paying, hard-working, patriotic American. The credit industry alleges that of the 1.37 million people who filed for bankruptcy in 1997, somewhere between 15 percent and 25 percent could have paid their debts.
Creditors note that they write off about $40 billion in debts annually, which works out to about $400 to $500 for every American household. Thus, the reasoning goes, if access to bankruptcy were restricted, the credit industry wouldn't suffer losses that it must pass along to consumers.
The fact of the matter is the credit industry would sustain the same $40 billion in losses even if the entire Bankruptcy Code were repealed. The reason? Most of the debt is owed by people who — the credit industry knows — are dead broke and wouldn't be able to pay under any circumstances. You just can't take blood from a turnip.
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