I don’t know what you have in mind regarding “limited cancellation”, but I am guessing that you’re saying that there are certain essentials which a man must have, such as a home, clothing, and work tools, so that some assets should be protected.
Not at all. Liquidate a debtors entire holdings. What I’m saying is that the statute only provides for the cancellation of a limited set of debt types. One would need to bear that context in mind when assessing the damage to the concept of contract. It is a small part of the bankruptcy code. Even in Chapter 7, secured debt is not cancelled.
The second issue, the much more important one, regards the type of debt. The common phenomenon of people willfully living beyond their means and racking up massive credit card debt, then using bankruptcy as a way to reboot and start up again is appalling. Without saying that there actually is any circumstance under which I think the concept of obligation should be set aside, it is clear that – whatever those circumstances are – egregious irresponsibility and evasion should not be rewarded by a get out of debt free card.
I agree as well. Nor do I think that bankruptcy is properly characterized as a “get out of debt free card”. If you want me to admit that there is a moral hazard with bankruptcy as a form of insurance, well I’d be happy to. But this is the same sort of moral hazard that exists when one takes out car insurance and then drives sloppily. Yes, it is morally reprehensible.
The thing that you are not considering is that the same moral hazard exists on the creditor side, but in a little different form. That is, the last creditor to sell the last marginal increment of credit has the least to lose should a debtor declare bankrupcy and therefore there is a moral hazard amongts creditors. That is why creditors who are first, secure their debt and watch the ongoing credit history of the debtor much more closely. So the sellers of unsecured credit are less concerned with whether they effectively push the debtor into bankruptcy than the first creditors were. This moral hazard on the part of the last creditors to the trough is just as egregious and bankruptcy ought not to reward those creditors by necessarily trying to keep them whole, don’t you think? In fact, isn’t the threat of debt cancellation a deterent to those creditors who would turn a blind eye and offer more credit to their customers even when they know that their customers risk of bankrupcty increases significantly with such an offer?
So what I’ve done is point to one example that I’m hoping you’ll agree to, as being a case where a person’s debts should not be forgiven. I’m looking for limited examples of what you consider to be unforgivable debts. If you say that you think no debt should be unforgivable, then I think we’ll need to move the discussion to something broader, including criminal punishments, for example.
refresh me here. I’m not sure what example you are pointing to.
As to my answer. Unsecured debt is a relatively small slice of all the debt out there. All other debt seems reasonable to consider unforgivable, and that is actually what bankruptcy does.
The reason why I don’t think that debt cancellation is the best available restitution is that it is not the best available restitution. Even better than cancelling the debt is not cancelling the debt, and requiring the debtor to make regular payments of his debts. The reason why this is better is that is is closer to full restitution and satisfaction of the terms of the contract, even if it doesn’t ever reach that goal..
This is called Chapter 13, and is used when the debtor has the ability to repay the debt. When I say repay the debt, I mean to keep the creditor whole. That means with interest. However, what happens when that debt load is simply not servicable? i.e. when the debtor cannot pay that debt because he cannot keep up with the interest load? That is Chapter 7, and that is what everyone is
I’m not sure how many times I need to go through the future value argument, but your example of continuing to pay even if you don’t reach your goal, IS CANCELLING THE DEBT, or at least a portion of it. OK so take a total debt requirement to a series of different creditors. Restructuring that debt (reducing payments, changing duration, liquidation making a lump sum payment) IS cancelling a portion of that debt. Now, the question is how to apportion that cancellation. Your solution simply says all creditors should get a portion of it, but it does not get around the fact that you’ve still cancelled debt. Bankruptcy and the market say, _ creditors have a priority _ and the last to the trough may bear more of the cancellation burden up to and including total cancellation. If in fact, the sellers of unsecured debt naturally have a higher moral hazard, then the fact that they may suffer more of the cancellation burden is perfectly just.
I don’t see the analogy between decisions about remedies and annihilating an obligation. Assuming that the court hasn’t found the agreement to be invalid in the first place, then the purpose of the court is to enforce the terms of the agreement, which boils down to an exchange of value for value. An order of specific performance is the best remedy, which is analogous to actually paying the debt. When specific performance isn’t possible, e.g. the item was destroyed, then an equivalent substitute value is ordered. So what the court is saying is “Although you wanted that car, it doesn’t exist, and our judgment is that $50,000 is an objectively equivalent value”, which thus completes the trade. The courts does not say “Well, since you can’t deliver that car since it was damaged in a fire, we’ll just cancel the obligation”. Is there some other aspect of damages that you’d like comment on? I mean, there are huge areas that are worth comment on, like the question of whether punes are conceptually valid, and in general, to what extent is the observed Anglo-American approach to remedies for breach of agreement actually optimal.
This is why I asked about standard of value. “Value for value” in remedies is the first criteria used in a breach case, and is called “expectation measures.” However, if it is impossible or undesirable to do so, the court may default back to different remedies designed based upon different standards of remedy. In these cases in fact, the court does say “It is impossible to restore you to the state if the other party had abided by the contract, so instead we can a) restore you to your original state before you entered into the contract or b. apply damages such that the other party does not profit from the transaction.” The analogy is that Chapter 13 is the first level of remedy in bakruptcy, and Chapter 7 represents the secondary levels when it is impossible for the debtor to service the debt. If the court can change standard in a breach case, and not go off of the value for value standard, doesn’t this also corrupt the concept of contract as per your statement? If not, then why does this not apply to bankruptc, as well? In fact, I would argue that liquidation satisfies the criteria of “restitution” (the debtor cannot have in any way profited if all of his assets are removed) which is the class b. above. So in fact, if all assets are liquidated and debt is refinanced in order of creditor priority (which is not done now, but should be) and no money or ability to repay is left (which is what will happen, _ by definition _, in Chapter 7), cancellation of the remaining debt is reasonable.
The problem with letting creditors hold out to renegotiate debt after bankruptcy is not about what the debtor morally owes, but comes about through the fact that you always have multliple creditors, and you simply can’t get through the bankruptcy proceeding without bringing all creditors to the table and resolving all the claims at once.
