Pro “Reform” Prof: Bankruptcy is “Easy”

David Broder opines in the WaPo today and the NY Times has a longer analysis piece.

Since Prof. Todd Zywicki, one of the main academic supporters of the “reform” bill, is quoted today in NYT, and since I will critique his positions shortly, let’s go to his two paragraphs from there because the mask is off (bold added; link is to second page where Mr. Z’s quote is; link requires registration and free access with registration goes away after roughly a week):

But Todd J. Zywicki, a professor at George Mason University School of Law, said that financial distress cannot explain the surge in personal bankruptcies in the 1990’s. They were not preceded, he said, by equally steep increases in unemployment, divorce or health-care costs.

Professor Zywicki has a number of theories on why bankruptcies have increased, but if asked to rank them, he said that the No. 1 would be “the generosity of the bankruptcy code - it makes it so easy.”

Here’s hoping that Prof. Zywicki’s “easy” characterization becomes to the bankruptcy debate what “a bunch of guys in their pajamas” was to the blogs during RatherGate.

Besides the paperwork, which I would characterize as anything but easy based on this (link is to Texas info; procedures are nearly uniform in all 50 states), here are some other “easy” aspects of bankruptcy:

- You have a black eye on your credit reports that will stay there for 7-10 years.

- It will affect your ability to get a job in many professions, and may cause you not to be able to keep your job. A healthy percentage of employers pull credit reports when you apply, and in certain cases they can pull them at will. Many employers, rightly or wrongly, conclude that if you can’t take care of yourself financially, they don’t want you to be around their assets.

- It will affect your vehicle and homeowner’s insurance rates in most states. Sometimes it takes an accident or a claim to trigger a big increase, sometimes it simply happens at renewal time.

- Utility companies, wireless providers, and the like will impose deposit requirements.

That’s just the hard financial stuff (most of it). These common psychological consequences explain why people try to avoid bankruptcy:

- Divorce, especially when one person contributed more to the problem than the other. In many cases, the offending spouse, so to speak, knows that the marriage is probably over if they file, and does everything possible to avoid it.

- Negative impact on extended family relationships, especially if some of the extended family isn’t getting paid back what was borrowed.

- Negative impact on work and social relationships.

- At the risk of getting into personal psychology (if you don’t like this one, fine, just acknowledge the other three), because of the other items, there can be negative psychological effects, potentially to the point of depression or suicide.

All of the “hard” and “soft” reasons identified, plus the sense of honor that most people try to live by, are reasons why, if anything, people avoid filing for bankruptcy and, in many cases, delay the inevitable longer than they should.

I’m sure everyone has a story of someone who took bankruptcy as the easy way out, but it’s long way from there to concluding, as Prof. Zywicki has, that there has been a pervasive breakdown in willingness (not the ability, the willingness) of people to walk away from their obligations in the past 20 years. I’m not buying it. This cannot be the whole explanation. Something else is involved.

More to come that will first describe the Professor’s positions and then argue against them.