Occasionally I read blogs related to bankruptcy, debt, and finances. On occasion I come across an anti-bankruptcy blog; one that tells debtors to avoid bankruptcy at all costs because it will ruin their lives. The messages contained in these anti-bankruptcy blogs are often the same: if you file for bankruptcy you will lose all of your property, ruin your credit, and cheat your creditors. While I often dismiss these blogs as oversimplified (and often plainly incorrect rubbish), I do on occasion come across an assertion that is wrongheaded: filing for bankruptcy is immoral. What this sentiment fails to recognize is that bankruptcy is a business decision, not moral one. When corporations pursue chapter 11 bankruptcy to restructure their debts they are not concerned whether they will hurt their creditors' feelings; they are making a business decision rooted in economic pragmatism. Bankruptcy is a product of debt which is the natural corollary to credit. In free markets credit is extended to facilitate consumerism and new profit-driven ventures. However, with the extension of credit comes debt, and a certain number of players will incur debt they cannot repay. When overwhelming debt is incurred bankruptcy is the process of reconciling those debts once and for all. Upon the completion of bankruptcy the debtor will reemerge free of crushing debt and able to participate in the market once again. Hence, filing for bankruptcy is not immoral just as it is not immoral for your credit card company to charge interest on your credit card balance.
Bankruptcy is an economic decision that should be made free of emotion and moral concerns.
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