Many clients feel shame about filing for bankruptcy protection. I can tell because they tell me repeatedly that they never thought they would be talking to a lawyer about bankruptcy, or that they fully intended to and still intend to pay their debts. “I’m not really like this,” I will hear, or “I always paid my debts until [I lost my job] [I lost my husband] or [I lost my health].” There is a notion out there that filing for bankruptcy is somehow wrong, a way of getting away with something for nothing.
The truth is that it is easy to get into a situation where your debt crushes you. And there is a long, noble tradition of debt forgiveness. According to the Hebrew scriptures, God counseled Moses to forgive debts every jubilee year. Scholars have found a similarity between the Hebrew debt forgiveness and a practice used by the Hittites.
Every market economy needs some mechanism for returning debt slaves to productive capacity. Without bankruptcy, according to Prof. Jack Ayer, debt collection for insolvent people and businesses will be conducted with the help of thugs wielding large iron pipes. In the United States, we have less of a social safety net than other developed countries; Megan McArdle of The Atlantic says that this explains why we have the most liberal bankruptcy laws of any developed country.
A capitalist, market system is a more moral system than anything else we know. Capitalist, market systems have winners and losers. We all hope to be winners. But we must deal with the losers too, and it is not immoral to recognize loss, face your problems, and find a solution to an otherwise-insoluble problem.