NCPA - National Center for Policy Analysis

Who Pays For Bankruptcies?

December 18, 1996

Some argue that avoiding debts through personal bankruptcy is a form of legalized theft, and that large numbers of otherwise honest citizens are crossing the line these days.

Critics of U.S. bankruptcy laws contend that the process -- meant to be used only as a last resort -- is being used as a first option. They believe the laws should be changed to ensure that those with the ability to repay even a portion of their debts do so.

  • This year, for the first time, personal bankruptcies will exceed one million.
  • Personal bankruptcy filings have tripled since 1984 and have risen by about 40 percent in the last two years alone.
  • In 70 percent of cases, the individual involved will not be required to go on a repayment plan.
  • The vast majority will receive near total debt forgiveness and will not be asked if they are able to repay even part of their debt.

Responsible consumers will end up paying more than $4 billion worth of debts as the creditors pass the costs along to the rest of the public in higher prices and higher credit costs.

A recent study of bankruptcies published in the Journal of Consumer Studies shows that:

  • Some 64 percent of individuals filing for bankruptcies are employed full time.
  • And 23 percent are in managerial or professional positions.
  • Some 17 percent are in construction, trade or transportation.

Experts say that greater social acceptance of bankruptcies, changes in law that have made bankruptcy less onerous for individuals and increased advertising by bankruptcy attorneys are factors contributing to higher bankruptcy rates.

Source: James Carter, "Bankruptcy as the Last Resort," Washington Times, December 18, 1996.

 

Browse more articles on Economic Issues