Despite the 2005 passage of a law that made it more difficult and expensive to file for personal bankruptcy, more Americans are choosing bankruptcy over destitution. Filings -- including Chapter 7, which wipes out debt, and Chapter 13, which reorganizes it -- totaled 822,590 last year, up 38 percent from 2006.Sadly, unless we start to do something about economic inequality in this country, it doesn't look good moving forward [emphasis mine]:
"The rise in bankruptcies is not about something that happened last week or last month," said Elizabeth Warren, a Harvard Law School professor and a bankruptcy expert. "It's about the fundamentals. It's about declining wages, rising costs, inadequate health insurance, job instability. More hardworking middle-class families simply can't make it in this economy, and it's only getting worse."However, inequality doesn't explain it all.
Bankruptcy attorneys and economists said the trend cuts across all segments of society -- the young and the old, homeowners with bad mortgages and renters, the poor and the middle class. In the past, bankruptcies were more common among people who had sudden life changes, such as a divorce, illness or job loss. Now, the bankrupt are people who have simply racked up too much debt.I have sympathy for those who find themselves in over their heads due to illness or other life changing events, but I have little compassion for those of you who lived beyond your means or scammed the system.
"It is pretty widespread because there are widespread problems in the economy," said Peter Morici, an economist at the University of Maryland at College Park. "Americans have been spending 105 percent of their income for the last three or four years. That's not sustainable."
Take the housing mess we currently find ourselves in as an example. I was talking to a friend in the mortgage industry recently and I asked him why so many companies gave loans to people with poor credit. His response shocked me because it boiled down to "everyone else was doing it, so why shouldn't I?" He said if his company turned down an applicant that person would just move on to another company where they'd be approved for a mortgage and that broker would earn the commission. He said he just couldn't see giving the business away even if the person's credit was shaky.
He was quick to point out that credit worthy homeowners aren't perfect angels either. The latest trend he's seeing is homeowners with lots of equity in their homes taking out home equity loans, paying cash for an equally sized or larger home at below market value, and then walking away from their current home. They end up living in a home that's paid off and the bank gets stuck with their old house and the outstanding mortgage. I call that stealing.
Nice world we live in, eh? Everyone is scamming everyone and no one is being held accountable, and those of us who play by the rules and honor our obligations have to live with the results of this mess. Maybe we need to bring back debtor's prisons to restore some common sense to this country.