Before filing bankruptcy a lot of people worry whether filing will be moral or ethical. Most people realize that bankruptcy is legal, but they question the morality or ethics of getting out of debt. After all, we are brought up being told that we should pay our debts.
Bankruptcy can trace its roots back to Jewish traditions as reflected in the Old Testament. Every seven years was a Sabbath year in which debts were forgiven to community members. Every 50 years was a Jubilee year in which all debts were forgiven. Modern bankruptcy had its beginning in the 13th Century. At that time merchants sold their wares from benches set up in the public marketplace. When a merchant could no longer pay his debts his fellow merchants broke his bench, thus putting him out of business. Though the word bankruptcy sounds like a bank that has ruptured and is spilling money, a visually descriptive picture of what might happen when someone goes bankrupt, the word actually comes from banca rotta, which is Italian for “broken bench.”
The first official bankruptcy law was passed in England in 1542. Spain passed a similar act shortly after. In the United States, bankruptcy is one of the few legal processes mentioned specifically in the Constitution. Congress is given the power to enact uniform bankruptcy laws. The Founding Fathers knew that if different states had different bankruptcy laws, a bankruptcy granted in, say, North Carolina might not be recognized in Massachusetts and wanted to make it so that, once having declared bankruptcy, a person could be sure the relief granted would be recognized everywhere in the United States.
The point of this history lesson is to show that society has long recognized the benefit of granting a person who is struggling with overwhelming debt relief. In addition to helping the individual, bankruptcy is good for society as a whole. Imagine a person with too much debt, whose wages are being garnished and whose property is being taken. Such a person might not work. He therefore doesn’t pay taxes or buy goods from others, thus putting money back into the economy. He probably can’t afford medical care so if he or his family become sick they will use the emergency room and not pay. The family might receive welfare in the form of food stamps or other aid. All of this is a cost borne by society. On the other hand, if the person is given relief from debt he is free to start over and become a contributing member of society once again.
Bankruptcy is moral and ethical. In many cases, it’s not only the only option, but it’s the best option.
