NCPA - National Center for Policy Analysis

Focusing On Deadbeat Debtors

June 22, 2000

Americans now enjoy unparalleled prosperity, yet about 1.3 million people will file for bankruptcy this year. Some filers will be quite wealthy and will file frivolous cases to shelter their wealth from those who extended them credit in good faith. And some of the more outrageous bankruptcy petitions will slip through the legal cracks.

  • Creditors lose about $40 billion a year of unpaid debts discharged in bankruptcy.
  • They pass this loss on to all consumers in the form of a "bankruptcy tax" of higher interest rates, more punitive late fees and finance charges, reduced customer service and higher prices.
  • There are also less tangible damages caused by bankrupts -- their examples undermine the values of reciprocity, personal responsibility and promise-keeping that hold society and the economy together.
  • The discretion of bankruptcy judges to determine whether abuse exists also guarantees unequal treatment.

Congress has taken steps to rationalize a system that, in the view of reform advocates, is clearly out of control. Although President Clinton earlier this month threatened to veto the legislation, veto-proof House and Senate majorities have passed somewhat differing bankruptcy-reform bills. The legislation, however, remains bogged down in negotiations and its future is in doubt.

Source: Todd J. Zywicki (George Mason University School of Law), "Deadbeats Cost All of Us Dearly," USA Today, June 22, 2000.


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