What words do you associate with bankruptcy? Do you think of greed, excess and irresponsibility? Many Americans do, sadly because our history has a long history of regarding bankruptcy as a moral issue.
However, the Great Recession turned the notion of bankruptcy on its head, bringing to an end the stigma many people felt when filing for bankruptcy. More and more Americans turned to bankruptcy as a last resort in large part because of medical bills or job loss, occurring at time when credit was scarce and home prices plummeted.
Sen. Elizabeth Warren (D-Ma), has long championed the facts and research that show bankruptcy is not a moral flaw, but an outcome of circumstances. Her career certainly qualifies her to speak on behalf of all Americans who have ever filed for or considered bankruptcy. She served on the faculty of several law schools, and starting in 1995, she joined the National Bankruptcy Review Commission.
Her research proved the majority of bankruptcies in the United States were due to either job loss or medical bills. Many more were likely caused when homeowners were duped by unscrupulous banks who took advantage of the housing bubble.
Far from being a personal flaw, those who file for bankruptcy often find themselves a victim of circumstance. Medical bills consume their monthly budgets. Job losses remove income that had been long trusted. Home loans that far outstrip home values. All these circumstances threaten the American middle class.
So what’s being done about it?
Not much, is the answer. The government has in some small measures taken banks to task for lending unscrupulously. The settlements banks agree upon help pay back the government for the bail outs but do little to help families driven to bankruptcy due to the banks actions.
The Affordable Care Act will eventually drive down health care costs and make bankruptcies due to medical bills less common. And the slowly improving economy may also slow bankruptcies due to job loss.
However, the net reduction in bankruptcies due to these minimal changes in policies is likely to be negligible. So again we ask, what’s being done about this?
What, for example, would it look like if Congress enacted a job fellowship or internship program for those on unemployment rather than simply extending unemployment benefits?
First, those who are able and willing to work would find the in-roads they need to new businesses and industries in a much more concrete way than job re-training programs provide.
Secondly, those receiving unemployment now would no longer need it as they will receive a paycheck or stipend instead. Or perhaps the government could work out a system similar to federal work study for college students where employer costs are set off by federal dollars, benefiting everyone.
Those who enter into bankruptcy rarely do so because they’re financially illiterate. It’s time for the American workforce system to catch up to this reality and stop treating those who use this legitimate legal system to find relief as pariahs.
Instead, we should focus on programs that immediately place those filing for bankruptcy, because of job loss, directly into a jobs program that could turn their situation around. Instead of casting this growing group of Americans aside, let’s embrace them and set them on the path to prosperity, rather than relegating them to Skid Row.