Bankruptcy, Moral Hazard, and Innovation

Law
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The United States has some of the most lenient bankruptcy laws in the world toward debtors (at least for business-owning debtors). Do you think this is a good system? Why or why not?

* Response must be at least 150 words and provide sources if used.

Jul 17th, 2015

Thank you for the opportunity to help you with your question!

Bankruptcy allows individuals, couples, and businesses that cannot meet their financial obligations to be excused from repaying some or all of their debt. Bankruptcy has been in existence since ancient times. In the United States, the rules and procedures for filing bankruptcy are governed by federal law. States are prohibited from legislating in this area of the law.

Generally speaking, there are two types of bankruptcy. In a liquidation bankruptcy, debtors must surrender their property, which is sold, and the proceeds distributed to creditors. In return, all debts are permanently discharged. In a reorganization bankruptcy, debtors are allowed to keep their property. But the debtors must agree to an installment plan to repay creditors a portion of the amount they owe.

Filing for bankruptcy involves submitting a petition and fee to the bankruptcy court. The fee is close to $300 for most personal bankruptcies. The petition will contain sworn statements by the debtors concerning the amount of money they owe, their income and expenses, as well as a complete list of all of their assets. After filing, a court hearing is held to review the information in the petition. 

This I think is good because it allows individuals and businesses that cannot meet their financial obligations to be excused from repaying some or all of their debt

Please let me know if you need any clarification. I'm always happy to answer your questions.
Jul 17th, 2015

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