Debt Discharge

According to Zywicki (2000) rampant personal bankruptcy frays the social moral order and undermines reciprocity. Throughout history a debtor who failed to repay a debt was generally regarded as a fraud or a thief; debtors prisons existed for that reason; it was unthinkable that a loan should not be repaid. However, today, personal bankruptcy laws like the federal Bankruptcy Act protect borrowers by providing immunity from creditors. The borrower who defaults will see his credit rating decline to the point where it is nearly impossible for him to get another loan, but he is not held responsible for paying back his creditors. There is a social cost to this, as Zywicki (2000) points out: bankruptcy laws that provide defaulters with immunity undermine the market economy, democracy, and healthy institutions that rely on reciprocity. In short, personal bankruptcy and immunity from prosecution erodes social trust. The ability of a person or institution to repay debts, as agreed upon between the borrower and the lender, has a salutary effect on social relations...

8). Without that salutary effect, democracy itself is threatened, according to Zywicki (2000).

Yet, as Miles (1995) argues, the real virtue that holds society together is mercynot reciprocity. Mercy shown towards individuals who fail to repay their debts is important to social justice. When the less...

…economic matters, but they should not be if one is interested in promoting a sense of distributive justice. In earlier days when debtors prisons loomed, the harshness of the law was condemned by people calling for social justice and reform. The Bankruptcy Act may be seen as an outgrowth of that reform. To view it as a step backwards or as a roadblock to social development is to forget that taking punitive measures against those who fail to repay debts often led to massive suffering and economic inequality on a large scale. As Miles (1995) points out, modern bankruptcy laws limited the injustices of the old bankruptcy laws in several ways…