Bankruptcy Laws Favor Businesses, Hurt Individuals (Surprise Surprise)

Big companies declare bankruptcy all the time.  General Motors and Chrysler did it.  So have most of the major airlines:  Delta, Northwest, United, US Airways, and most recently, American.

Sometimes, these big companies aren’t even bleeding so much money that their future is in doubt.  No, they’re just looking ahead and saying that if they keep going the way they’re going, they’re in big trouble and won’t be able to compete.  They’re not actually in a great deal of trouble; they’re just anticipating trouble.

What happens in these bankruptcies?   Mostly, it’s a matter of really big guys stiffing really little guys.  They stiff their vendors, including some very small companies, and mostly, they stiff their employees.  They get to weasel out of fairly negotiated labor contracts, health benefits, pension benefits, and more.  Sure, we’re all happy that GM and Chrysler survived, but they survived by screwing the people who make GM and Chrysler cars.

Doesn’t seem quite fair, does it?

But what about ordinary people?  Can’t they use bankruptcy the same way?

Turns out, not so much.

Turns out, it’s a lot harder for ordinary people to take advantage of bankruptcy.  Bush administration changes in bankruptcy laws make it harder than ever to use bankruptcy to get out from under credit card debt.  Student loans?  Not covered by bankruptcy at all; declare bankruptcy while you have student loans and the loans survive the bankruptcy and you still owe.  Underwater mortgage?  Fuggedaboutit.  Bankruptcy laws specifically prohibit ordinary people from using bankruptcy to get out from under onerous mortgages.

Truth be told, The Curmudgeon doesn’t have a whole lot of sympathy for people who borrowed beyond their means to buy great houses they could never possibly afford.  The same is true for those who piled up too much debt on their credit cards and those who borrowed money for school.  The Curmudgeon admits to being somewhat of a hardass about this:  he believes such people need to suck it up, pay what they owe, and meet their commitments.

But that idea needs to go both ways.  If American Airlines ordered a million dollars worth of widgets from your company, it needs to pay you the damn million dollars.  If your union engaged in a fair negotiation with GM and the company agreed to pay you a certain wage and provide a certain level of benefits, GM needs to pay you what it willingly agreed to pay you.

Robert Kuttner explores the inherent unfairness of how American bankruptcy law treats big business and ordinary people in his article “The Age of Double Standards” in the April edition of The American Prospect magazine.  It’s worth a few minutes of your time, and you can find it here.

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  • Peaches Shimmerdeep  On May 28, 2012 at 7:52 am

    YES! I could not agree more.

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