In the 1800s, American humorist Henry Wheeler Shaw once said debt is like any other trap, it’s easy enough to get into but hard enough to get out of.
Debt is not a new concept, it existed for many years, from Mesopotamia through Ancient Greece, all the way to modern America. Debt has always been a part of life, it’s always alive and well it never goes away.
For many years, creditors had all the tools and the power to control your debt, to the point where even our founding father Benjamin Franklin, said: Creditors have better memories than debtors.
Luckily with debt came the tool that we call bankruptcy, a tool that over 400,000 people have used in 2021 alone.
What Was Bankruptcy Like In The Olden Times?
We can talk about going back to Ancient Greece, Ancient Judea, and Ancient Asia. It’s been around forever and ever as long as there’s been money.
Usually, what we would see in ancient history is that people who were in debt, would go into slavery and work off what was owed.
We didn’t necessarily call it bankruptcy, it was just how do you get rid of the debt in some way, that isn’t exactly paying it off.
We do think it’s important to think about what this means as far as what we talk about often, the emotional impact of bankruptcy.
This is a concept that goes back generations, it’s old, as old as time, so this is not something new, this is not anything fresh. As long as there’s been debt, there’s been things like bankruptcy, but in the olden times, it was slavery.
Then, it got a little bit nicer over time, in the Quran it says that you’re supposed to give somebody time to work on their debt, that you can’t just go and take it from them.
In the old testament or the Torah, as the Judaic people call it, it is mandated to forgive debts every seven years within their community, and then, every 49 years for people not in their community, the Jews and the Gentiles.
Was There A Need For Bankruptcy Back In Human History?
Sometimes, people just can’t pay back when they have all intentions of paying back when they take out the debt.
We think especially with Agrarian societies that you might not get paid on your crop for months and months after the harvest, or you borrow money for the seeds, and then, a year later you’ve sold your crop, and then, you can pay back what you borrowed to for those seeds, so it goes back a long time.
We’ve always been traders, gatherers, and hunters, and we need to kind of negotiate how we can get what we need, and you get what you need.
Punishments People Were Forced To Do When They Had Debt & Couldn’t Pay
Sometimes a slave would even have to pay with their life, your family would have to go into slavery too.
Genghis Khan had a policy that if you had to have a bankruptcy, have your debts forgiven more than three times, you would be beheaded, and you would be killed if you had a bankruptcy a fourth time, that’s a pretty harsh punishment.
Then, we think about the old Charles Dickens books, which talked about debtors’ prisons, where children had to go into workhouses to pay debts and things like that.
Why There Was No Empathy When It Came To Debts?
That’s not a past tense thing, that’s happening right now. We look at who has the power, the people who have the money, the people who are doing the lending, the banks, the landowners in ancient times, and today who make the rules.
They want to use all the methods of control possible, to get their money back.
That method of control might be high-interest rates, it might be slavery, it could be anything in between, and even a guilt trip, making you feel really bad about what you’re doing and linking it to some kind of moral failing if you are not able to repay your debts.
That’s just a strategy, the people in power want you to feel bad if you can’t continue to keep them in power.
What Was Early American Bankruptcy Like?
Early American bankruptcy was mirrored with the English common law, and by the time the colonies were established, there were these things called canonical law, and that’s where the religious authorities got a hold of these rules, and they started to make some changes.
Those authorities determined that there needs to be a little bit more grace when it comes to people who cannot repay their debts, so they might have to give up everything they own but then, they could still be free.
At first, the bankruptcies that were in the United States or not yet in the United States, were only for involuntary proceedings, so you couldn’t raise your hand and volunteer to go into bankruptcy, it was only for traders and only involuntary bankruptcy.
It wasn’t until about a hundred years later in the late 1800s, during The Nelson Act, that we started to see bankruptcies a lot more like what we have now.
We could have voluntary bankruptcies by the middle of the 19th century, and now, we have the end of the 19th-century relations kind of closer to what we have now.
Is There Anything About The Current U.S Bankruptcy Laws That Is Out Of Date?
Laws are not known for being quickly changed, so when we have new technologies like cryptocurrency, it’s hard to pivot, and it’s hard for bankruptcy courts to address those issues very quickly.
Another issue that has not moved as quickly as the change in society has been student loan debt, which we’ve talked about previously.
There have been opportunities for Congress to make some changes about student loan debt, but they’ve chosen to keep it pretty difficult to discharge student loan debt.
Those are some things that we think are really out of date. We try to get those things to speak clearly to the current situation, but sometimes old laws and new situations don’t match as well.
Has Bankruptcy Gotten Better Through Time?
Bankruptcy is headed in the right direction, we’re all for offering grace and compassion, and time.
We know that there are a lot of caring people who are on the bankruptcy bench, the trustees, and of course, creditors attorneys, people who want to work together to help people get on a better financial footing and to treat people with respect and dignity that they deserve.
Overall, it’s gotten better. We’re not beheading people anymore, we’re not throwing people into debtors’ prisons to work off their debt.
It’s two steps forward, and one step back, there are some things we think we could improve on but overall, it’s better than it used to be.
Which Are The Worst Changes Lawmakers Have Made To Bankruptcy?
We’re gonna bring up one thing that we think is not the worst change but it’s an annoyance. Since 2005, Congress has required people filing for bankruptcy to do this one-hour online ‘’credit counseling class’’.
We think it’s stupid, it’s insulting to people who are filing bankruptcy as if they’re babies who don’t know what credit is, and don’t know what is happening, and that they need more money to pay off their debt.
That’s an unfortunate change, probably not the worst thing, but this is something that we see every time.
We also do think that making it so difficult to discharge student loans has been a real flaw over time, it’s not something that happened all at once, it happened over time, but that it’s unfortunate.
It doesn’t take into consideration the huge burden that people are under when they do have student loan debt, why they might have taken out student loan debt, and how it impacts different populations differently, unjustly.
The bankruptcy courts just have not kept up with that, and we think that’s unfortunately the worst change.
Does Bankruptcy Only Favors The Rich?
There are quite a few guard rails that the bankruptcy system does a fairly good job of eliminating fraud or bad behavior in bankruptcy.
Individuals are indeed trying to take advantage of the system, things we don’t see very much of, or multi-million dollar corporations or millionaires.
It can help people who are very high-income earners, or corporations or cities because it can reorganize debt, but the people who have no income, who’s at one time, probably did and had some debt that they thought they could pay off.
Bankruptcy is a great tool for that. We do some work at Lincoln-Goldfinch, where we represent people for free, it’s called pro bono, and we do that through a couple of organizations in town here in Austin.
It’s amazing to be able to help people who qualify for that free help, they have no income to speak of, and very few assets, but they have debt that they can’t get ahead of and we get to help them with that, it is a really rewarding job.
We think that everybody should be able to not take advantage but to use it as it should be used, and it could help just about anybody who’s overwhelmed by debt.
Student Loan Debt Impact In The U.S
There is a big chunk of the population who have student loan debt, and who never finished their degree.
They were not able even with student loans to complete the degree, so they don’t have the advantage of those career opportunities, but they do have all the debt.
Those people can get assistance, we have people who went to for-profit universities that are still allowed to operate, and they have huge student loan debt.
People who are black and brown in our country tend to borrow at higher rates, not having the generational wealth that would help somebody pay for a college education.
This is a big deal and it’s very exciting as to how it would affect people who are filing for bankruptcy because student loans are so hard to discharge.
We think it’s going to lead fewer people to file bankruptcy because if they don’t have that debt, they can have some disposable income to pay for their other kinds of debt.
If we have eliminated student loans, then, that’s money that’s going into the economy.
We don’t anticipate seeing a huge impact on bankruptcy from this student loan relief.
Biden’s Bankruptcy Plan & How It Would Affect People
We think it’s a very good idea, it’s been a long time coming. It is only going to help people make ends meet.
We don’t want to have 95-year-olds out there still trying to work because they’re paying off their student loan debt from when they were 30.
That’s a terrible thing, and that’s not the kind of society we want, although we do agree that it’s not enough, we don’t think it goes far enough.
This is a marvelous step in the right direction, and we need to do more, not just in terms of loan forgiveness or loan relief, but in terms of regulating how universities and colleges charge, and how much they can charge when they are for-profit or not-for-profit.
For example, textbooks are ridiculously expensive, can we do something about that? We think it’s a whole systematic issue, but we think it went as far as it could for the times that we’re in.
As for it not being fair, we guess people can have their feelings about that, but loans get forgiven all the time.
Millions and millions of dollars of PPP loans (Paycheck Protection Program) were forgiven, corporations get all kinds of loans knocked off, and they get all kinds of relief, so, having loans forgiven for you and me? That’s fabulous! We think it’s only good.
Is There A Debt Relief That Government Employees Get For Student Loan Forgiveness?
Some organizations’ for-profit colleges were forced to close by the department of education.
A lot of those individuals who had loans with those colleges and universities, get their student loans forgiven.
There’s something called public interest loan forgiveness or pilf, for Government employees teachers, and people working for non-profits.
If they make payments for 10 years, then, after those 10 years, they can have their federal loans forgiven.
There are other kinds of income-based repayment programs that after 20 years of payments, you can get relief on all sorts of things.
It happens every day, we don’t even realize it, it just doesn’t make as big a splash but no, it’s not rare at all, it happens all the time.
Why Do Lawmakers Refuse To Allow Student Loan Debt To Become Part Of Bankruptcy?
If there’s a rule or a law that seems unfair or outrageous, ask yourself who benefits from that. There are powerful lobbies in all kinds of legislatures, nationally, locally, and at the State level.
Banks and lenders have a huge lobby, and they’re the ones who would stand to lose if student loan debt is discharged in bankruptcy.
The Government would be working against its self-interest. So, when you look at that, you don’t have the single mom lobby marching the streets of Washington DC, you don’t have the teachers who have to work an extra job to pay their student loans, that’s not out there either.
We have these power centers, where money is in control of a lot of our lawmakers and how laws get made.
The last time there was an opportunity to ease up on student loan dischargeability was the late 90s.
There was a senator from Delaware who was against it, even though he was a democrat and we know that Delaware is a center of a lot of banking centers, so you know who has the power to make those decisions.
The people who will profit from those decisions are the ones who make it really really difficult.
Why Is Bankruptcy So Important?
There’s the emotional side, and then, there’s the practical side. For us, the emotional side is that we strongly believe in redemption, second chances, in fresh starts.
We don’t know anybody in our world who hasn’t stumbled and needed a helping hand to stand back up, nobody makes it on their own.
We just don’t believe that people need to live with crushing debt, that there’s a way to move forward in life and it just affects your mood, it affects your relationships, it affects your choices in life, it affects what you buy at the grocery store.
Having relief when your circumstances change is hugely important.
The practical side is as you know, bankruptcy is in the Constitution, it’s in article 1, section 8.
Why did the founders think bankruptcy was important enough to put in the Constitution? Well, it’s because there’s a big societal benefit.
If our legal tender, if our money is controlled by the Government and how we operate our financial systems, we need to have a release valve, we need something so that we don’t end up back in debtors’ prisons and enslavement for debt.
We think it just makes society run better if people can stand back up after having this kind of blow.
Where Do You Think Bankruptcy Will Go In The Next 50 To 100 Years?
We think that in 50 years bankruptcy will address the problems that come up in 25 years.
Whatever we’re seeing now as far as bankruptcy changes, it’s starting to kind of change the tide for the problems that we knew were coming up a generation ago, 25 years ago.
So, in 25 years we might be able to see some changes and solve some problems for what we’re seeing now, and so on and so on.
Laws don’t change quickly, if we had our druthers, we would get money out of politics. We don’t think that’s ever really going to happen, but it’s hard to make money decisions by the people who have a seat at the table, for people who don’t have a seat at the table, it’s just not fair.
The laws move slowly, and courts move quicker than laws do, so we think you need to pay attention to who’s on the bankruptcy bench, who’s representing you, and these communities, all politics are local, so make sure that you’re working towards the changes you want to see locally, and then, it’ll trickle up.