Bankrupt America

Now we begin to feel it. Remember that bankruptcy bill that Congress passed and Bush signed earlier this year? You know the one. The Republicans’ gift to to the banks and credit card companies? Well, it takes effect this month and Americans are trying to beat the rush to declare bankruptcy.

BankruptcyLast fall, the Debt Relief Legal Clinic was the busiest bankruptcy law firm in San Diego, filing 90 personal bankruptcy cases in September and October.

…The new law makes it more difficult for a debtor to qualify for Chapter 7 bankruptcy, the easiest and most expedient form of personal bankruptcy. Under Chapter 7, individuals are allowed to virtually wipe out all debt, except for items such as child support, student loans and most taxes.

Under the new law, individuals face a means test to qualify for Chapter 7. The test attempts to determine how much of their income goes into essential living expenses and if, after those expenses, an individual still can pay 25 percent of their unsecured debt obligation. If they can, and they make more than the state’s median household income, they will not qualify for Chapter 7.

In California, the median household income was $51,185 in 2004.

Not knowing all that much about bankruptcy, I didn’t write much about it at the time. (Hunter, at DailyKos, gives a comprehensive rundown of the bill and its passage.) I’ve never declared bankruptcy, and with the new law coming into effect I sincerely hope I never have to, but I hadn’t thought much about it until I saw the above article. I knew that the bill only affected individual avenues to bankruptcy (Chapters 7 and 13) but not businesses (Chapter 11). Given the dramatic rise in bankruptcy cases, I couldn’t help wondering how many of the folks queueing up to declare bankruptcy had voted in the coalition that gave them the bankruptcy bill.

I started looking around. It wasn’t until I stumbled across an excerpt from Tom Friedman’s The Lexus and the Olive Tree: Understanding Globalization (which I haven’t read, though I’m sure it’s one of those books I’m “supposed” to read), in which he describes how his imaginary economic architect would put generous bankruptcy laws to use that I understood how in a way the passage of the bankruptcy bill symbolized the victory of one conservative idea over another.

He would have designed a country with a system of bankruptcy laws and courts that actually encourages people who fail in a business venture so declare bankruptcy and then try again, perhaps fail again, declare bankruptcy again, and then try again, before succeeding and starting the next—without having to carry the stigma of their initial bankruptcies for the rest of their lives.

In Silicon Valley, says renowned venture capitalist John Doerr, “it is O.K. to fail and in fact it might even be important that you failed before on someone else’s money:’ In Silicon Valley, bankruptcy is viewed as a necessary and inevitable cost of innovation, and this attitude encourages people to take chances. If you can’t fail, you won’t start. Harry Saal, who founded one of the most successful software diagnostic systems in Silicon Valley. after being involved in several start-up ventures that went belly-up, once told me over coffee in Palo Alto: ”The view here is that you are always better and wiser for having failed. Which is why when people here fail after having tried something, they often have an easier time raising money the next time around. People say, ‘Oh. he went bankrupt on that first venture? I bet he learned something from that, so I’ll bankroll him again.’

In Europe, bankruptcy carries a lifelong stigma. Whatever you do, do not declare bankruptcy in Germany: you, your children and your children’s children will all carry a lasting mark of Cain in the eyes of German society. If you must declare bankruptcy in Germany, you are better off leaving the country. (And you’ll be welcomed with open arms in Palo Alto.) (emphasis added)

It occurs to me that Republicans are always talking about the small business man (or woman) as the answer to all of our economic problems, and they’re always talking about protecting small businesses and small business owners. But this time around, they’ve gone and yanked the carpet out from under those who would start business by raising the stakes.

Basically, from here on out, you can’t afford to fail. So, if you don’t have a guarantee that your business idea will success, you’d better be independently wealthy. Otherwise, you might be better off not trying, because your failures will follow you for a much longer time.

The law makes it much more difficult–and expensive–for people with no way out to escape heavy debts and start over. Under the bill, many families would be forbidden from filing for Chapter 7 bankruptcy, which basically erases a number of past debts–and would have to seek protection under Chapter 13, which requires repayments, no matter how overwhelming their debts.

It also occurred to me that there’s a conservative moral theme here that’s actually kind of in tune with the bankruptcy bill, as it will take effect this month. It goes back to Lakoff’s “strict father” brand of conservatism.

How? Here.

Competition is necessary for a moral world; without it, people would not have to develop discipline and so would not become moral beings. Worldly success is an indicator of sufficient moral strength; lack of success suggests lack of sufficient discipline. Dependency is immoral. The undisciplined will be weak and poor, and deservedly so.

…Since to participate in the promotion or preservation of immorality is itself immoral, it is a moral requirement to eradicate immorality—through “tough love” if possible but through punishment if necessary—in every aspect of life, both public and private, domestic and foreign. (emphasis added)

And again here.

Promoting unimpeded economic activity means favoring those who control wealth and power, who are seen as the “best people,” over those who are unsuccessful, who are seen as morally weak. Corporations are more heavily favored than non-corporate businesses, because big businesses (like wealthy people) have gotten big precisely through working hard and being disciplined. …Competitive markets separate winners and losers, rewarding those who are successful, and punishing those who are not.

According to that view, there are no second chances when it comes to failure, at least not until your failure has been punished — in this case by removing the possibility that you might be able to alleviate the consequences of that failure (by declaring bankruptcy, and getting a fresh start). This may be, in part, because there really is no such thing as failure, just like there’s no such thing as being unlucky. There are only bad or immoral choices. By closing the door to bankruptcy, or at least narrowing the chances considerably, conservative might be doing you a favor by forcing you to be “moral.” There you have it. “Tough love.”

That’s why the bankruptcy bill doesn’t affect wealthy individuals or big corporations like Enron, when it comes their turn to go to bankruptcy court. Remember “worldly success is an indicator of sufficient moral strength.” Wealthy individuals and big corporations have already proven their worthiness by their wealth. Were they, morally speaking, not the “right kind of people” they wouldn’t have their wealth. And when the worthy need help, they also deserve it.

That also answers any question about how George W. Bush — a man with numerous business failures — can, with a straight face, sign a bill that will make it much more costly for other’s to fail as well, and much harder for them to recover. As the saying goes, nothing succeeds like success, and in George W. Bush’s case coming from a wealthy and powerful family saved him nearly every time. Again “worldly success is an indicator of sufficient moral strength.” If Bush’s success is due to his family’s wealth an influence, it’s because he comes from “the right kind of people.”

It also answers the question of what happens to those who find their fortunes reversed by medical or natural disaster. If you find yourself in a mess not of your own doing, you’re on your own because there’s no such thing as a mess not of your own doing. If you’re one of the 2 million or so who file for bankruptcy each year because of illness and medical bills — three quarters of whom have health insurance — maybe you can find a local television station to do a story and help you raise the money. If you’re one of those people who was wiped out by hurricane Katrina, you’ll find the door to bankruptcy court closed and possibly even locked. At the very least, you’ll have a much tougher way to go. And even if you’re not among those number, unless you have a great store of wealth somewhere, you’re probably one illness, accident, or disaster from bankruptcy yourself.

One more time, let’s review: “worldly success is an indicator of moral strength” and “the undisciplined will be weak and poor, and deservedly so.” Come hospital stay or hurricane, you only get what you deserve, and what you deserve is determined by what you have.

And the red-staters who are or will be lining up outside bankruptcy court will accept it all because what sustains their support of the conservative “strict father” world view is that they are the “right kind of people” and thus can and will achieve the wealth to match their moral standing. The great irony, of course, is that they’re supporting the very politicians and politics that endeavor roadblock one route to wealth; one that doesn’t require merely inheriting it.

For those folks, I don’t have any advice other than that I plan on taking myself. Don’t go into business for yourself, and look both ways before crossing the street.

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About Terrance

Black. Gay. Father. Buddhist. Vegetarian. Liberal.
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One Response to Bankrupt America

  1. Frank says:

    We filed before the deadline. I can’t imagine what we would have done had we filed after the deadline though. Chapter 13? One can’t get blood from a stone but thanks to Bush, we probably would have been forced to do just that.

    A well-written post, thank you.

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