Is it wrong to file bankruptcy?

Millions of Americans file bankruptcy every year, but before you make this difficult decision it's important to consider the moral ramifications. Reckless spending and indebtedness is a national scandal.

Goals of Bankruptcy laws

Current bankruptcy laws have been created to provide legal protection for both the creditor and the debtor. Bankruptcy protects the creditor, by allowing them the right to obtain certain assets of the debtor. Bankruptcy protects the debtor from the abusive actions of the creditor. When the system is not manipulated or abused it can offer the debtor a fresh financial start.

Abuse of bankruptcy laws

When analyzing the moral implications of bankruptcy we must first analyze the debtor's actions and behaviors. The first example is the abuse of the bankruptcy system. Abuse of the bankruptcy process occurs when the debtor files multiple bankruptcies to live beyond their means and enjoy unrestrained spending for the accumulation of luxuries, which they are not entitled to nor can they pay for. Filing bankruptcy under these circumstances is not right.

So before you contemplate filing bankruptcy it's important to ask yourself several difficult questions. Did you buy frivolous things? Did you spend with reckless abandon? Did you max out your credit cards on unnecessary gadgets and toys? Have you put together a budget and learned to live within your means? Are you attempting to walk away from debts without making payments?

The bottom line is: if you enter into a voluntary agreement with someone and you promise to pay your debts, you are morally required to fulfill your promise.

Indebtedness beyond your control

Now, let's analyze a second case. There are many debtors who are thrust into what could be termed an "extraordinary indebtedness" through circumstances which are beyond their control. For instance, many debtors become sick and rack up medical bills which are simply unaffordable.

In this situation many believe filing bankruptcy, especially Chapter 13 bankruptcy, might be a legal, sound, and moral option for restructuring debt payments. Under Chapter 13 bankruptcy a debtor could repay his debts as soon as possible, and to the full extent of his ability.

So is bankruptcy morally reprehensible? It depends. If you are in a circumstance which is beyond your control, bankruptcy can provide protection. The goal, however, should never be to abuse the creditors, but rather make an honest effort, when possible, to repay your financial obligations.

Remember, there are also several alternatives to bankruptcy which should be evaluated before you make this important financial decision. Additionally, if you find you have to declare bankruptcy again and again, it's time to talk to a financial planner about developing a strategy to live within your means and not abuse the bankruptcy system. We all pay for bankruptcy when debtors fail to meet their financial obligations.