Moral Implications of Bankruptcy As Term Paper

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" When a person files for bankruptcy, a person's trust, conscience, moral responsibility and accountability are all jeopardized.

Trust

Trust has always been an important factor in any credit transaction. With the increase of informal credit sales such as credit cards, trust is crucial between the debtor and the creditor for the liquidity of the transaction. In earlier days, economic trust was interpreted as strong as other forms of human interaction such as neighborliness, friendship and marriage.

Economic trust was not thought of as a purely pragmatic relationship but was applied to a much broader spectrum of necessary social interaction. But, with declining morals in the country, it has become more acceptable to break this trust by filing bankruptcy when personal debts are too large.

Robert South writes, "without (trust) there can be no correspondence maintained either between societies or particular persons."

The basis of trust in promises and all other forms of human obligation stemmed primarily from the universal stress on the rightness of Christian belief. Such trust originated from a belief in God and salvation. Religious teaching stressed both the need to keep promises and to trust one's neighbors just as one trusted God while breaking of promises was sinful. A truly moral person would not break the promise made between a creditor and debtor because it is not a holy behavior.

Accountability

The Bible shares these verses about obligation of debt:

Romans 13:8: "Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law."

And in Psalm 37:21: "The wicked borrow and do not repay, but the righteous give generously."

The Bible is saying here that not only are we responsible for taxes, tolls and tariffs that are imposed upon us by our government, but also the respect, honor and praise we owe to those in high authority. As Christians, we are debtors to God's grace. As He has shown us love, we need to extend love to those around us with whom we live and work - even those who tax and govern us.

Conscience

Bankruptcies are often bad things that happen to good people. The burdens of the storm Katrina could eventually send many others down the same path, but a change in U.S. bankruptcy laws could make recovery even harder for those who follow, experts say.

Legal experts say there will likely be a surge in personal bankruptcy filings along the Gulf Coast months from now, as residents return and take stock. The wait could make things harder for some, as tougher limits on bankruptcy take effect Oct. 17.

Some lawmakers and bankruptcy attorneys are pushing Congress to delay the new law for Katrina victims. The Justice Department this week waived a requirement to undergo pre-filing credit counseling for Katrina victims and gave bankruptcy trustees some discretion on easing other requirements.

Heading to bankruptcy court is likely low on the current list of priorities for most Katrina refugees, lawyers say.

But some lawyers in Louisiana -- including Richardson in Baton Rouge -- are advertising to remind homeowners affected by the hurricane about the new bankruptcy law.

Under current law, Chapter 7 liquidation allows a person whose home was destroyed to essentially return the home to the lender, which would receive any insurance proceeds or take a loss if the payout is less than the loan balance. Chapter 13 reorganization, less likely for people without flood insurance who lost homes, would allow owners to keep their homes while they try to pay off their debts.

But the new law puts income limits on who can file Chapter 7 and requires those allowed to file to go through credit counseling. Though Katrina victims have a temporary reprieve from the before-filing counseling, relaxing other requirements is up to individual trustees.

Because of the dangers and differences and changes imposed by Hurricane Katrina, for instance, good people with good morals and no desire to hurt their fellowman by taking his money with the promise to repay while not honoring that promise, even these good people are being forced into declaring bankruptcy.

Consequently, the hurricane - and other disasters, such as for the families of September 11th breadwinner victims - forces us to reevaluate the philosophical difference between "good" or "justified" bankruptcy and "bad" or "unjustified" or "opportunistic" bankruptcy.

The Morality of a Diocese Bankruptcy threshold issue as to the morality of bankruptcy is whether the use of the bankruptcy was simply an attempt to avoid legal liability to the victims, hence yielding moral bankruptcy as well as legal.

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The best case of examining this is in the recent Catholic dioceses' bankruptcies, some stemming from abuse suits.

Most scholars agree that the true goal should only be to use Chapter 11 to arrange for orderly payment of claims and fair treatment of all claimants in any particular case.

This moral question related to the legal question of whether the dioceses would be kicked out of bankruptcy court as "bad faith" claimants using the bankruptcy mechanism simply to gain litigation leverage despite being financially healthy. Most experts believe the consensus was that the dioceses could be compared to companies such as Johns Mansville and AH Robbins which were permitted to utilize Chapter 11 as the best way to handle overwhelming tort liabilities to large numbers of meritorious and ultimately hugely successful personal injury claimants. There also exists interesting discussion of the extent to which American civil court system should (or could) defer to canonical law for purposes of determining ownership.

The conclusion that the bankruptcies could move forward, however, triggered new issues. What are the assets of the diocese (usually a corporation sole, with the bishop the sole member)? Do they entail parish property, which may be titled in the name of the bishop or the diocese, but in which the parishes who raised the money to buy the land or build the church/school have an equitable interest? Were recent property transfers to parishes considered voidable, preferential or even fraudulent transfers? Even if the property is the parishes' can substantive consolidation (like piercing the corporate veil) nevertheless treat the property as if it were the diocese's? How can a court or trustee in bankruptcy supervise a religious institution in Chapter 11 when decisions have to be made in light of the institution's religious mission? Philosophers and bankruptcy experts have different views about these questions, but all seem to agree that these were questions of first impression in this context.

Differences are generally even sharper over the First Amendment and RFRA issues. Some experts argue that THE First Amendment question here is whether hundreds of thousands of believers can be stripped of their places of worship and religious education because of the misdeeds of a very small number of clerics. On the other hand, other experts, namely staunch victims' advocates, assert that those faithful had forfeited consideration under the First Amendment because they had acquiesced in a system of heirarchical governance that made the cover-ups and further abuse possible.

This strikes an observer as a bit harsh, considering that acquiescence in the episcopal system of governance because of religious belief in apostolic succession merits First Amendment consideration. Only specific, knowing acquiesence in wrongdoing by the bishops, one could argue, would justify excluding the First Amendment from the equation. This is not to say, however, that those victims' advocates are wrong in their underlying assumption that a lack of accountability and transparency greatly facilitated gross errors in judgment and pastoral care. Indeed, one may cogently argue that Chapter 11 creates the opportunity for greater lay involvement in diocesan governance.

Conclusion

As this paper has examined, there are several viewpoints regarding the moral implications of bankruptcy. It is useful in conclusion to examine the Catholic viewpoint, as one that is so centered around guilt.

Bankruptcy must be considered not only from the legal but also from the moral point-of-view; for sound morality prescribes that debts must be paid. But a man who becomes bankrupt proclaims his inability to pay his debts in full as they become due. Such an acknowledgement does not now entail the penalty of slavery or of imprisonment as of old; the law takes possession of his property and divides it among his creditors. If it suffices after all to pay his creditors in full, there is an end of the matter, justice and conscience are satisfied. If, however, as is usually the case, the creditors only receive a portion of what is due to them, they have suffered loss through the action of the bankrupt, and if he is the voluntary cause of that loss, he is morally to blame as the cause of injustice to his neighbour.

There is no moral blame attributable to a man who through misfortune and by no fault….....

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