Is Bankruptcy Immoral?

In our legal system in the U.S. we have provided for way for debtors who cannot pay their debts to go to court and obtain a discharge from certain types of debts. That means essentially that the bankrupt person does not ever have to pay those debts and the creditors can do nothing to collect the discharged debts. Historically, people who could not pay their debts were sent to prison. Our system is somewhat more humane but is it moral?

I am using the term moral to refer to decisions made by people that are counter to the teachings of the Bible and are concerned with the principles of right and wrong behavior and the goodness or badness of human character. Ben Franklin, wrote: Think what you do when you run into debt; you give to another power over your liberty.

In more recent times, bankruptcy was considered both a financial and moral failure whatever the cause of the bankruptcy. In a talk given in 1957, Ezra Taft Benson, then a member of the Quorum of the Twelve of The Church of Jesus Christ of Latter-day Saints, outlined the dramatic increase in the influence of the U.S. Federal Government. More than fifty years later his words appear even more prophetic than they did at the time especially in light of the huge federal deficit (debt). At the time the debt owed by the government was a mere $277 billion.

About the increased influence of the Federal Government, he said, "Many forces work together toward the concentration of power at the federal level. Our people have come to look to the federal government as the provider, at no cost to them, of whatever is needful. If this trend continues, the states may be left hollow shells, operating primarily as the field districts of federal departments and depending upon the federal treasury for their support."

Ezra Taft Benson went on to say, "History teaches that when individuals have given up looking after their own economic needs and transferred a large share of that responsibility to the government, both they and the government have failed."

 Here in this talk by Ezra Taft Benson is the key to understanding the morality of bankruptcy, "Another reason for the increase in debt, I believe, is deeper-and causes greater concern. This is the rise of materialism as contrasted with spiritual values. Many a family, in order to make a “proper showing,” will commit itself for a larger and more expensive house than is needed, in an expensive neighborhood. Again almost everyone would, it seems, like to keep up with the Joneses. With the increasing standard of living, that temptation increases with each new gadget that comes on the market. The subtle and carefully planned techniques of modern advertising are aimed at the weakest points of consumer resistance. And there is a growing feeling, unfortunately, that material things should be had now, without waiting, without saving, without self-denial."

It is not that bankruptcy itself, necessary in some situations, is immoral, it is the behavior of those who use bankruptcy to excuse their immoral behavior. Continuing on with quotes from Ezra Taft Benson, "All of us as individuals-and above all, as members of families-have an obligation in conscience not to mismanage our resources...Truly, man does not live by bread alone. A good name is still to be preferred to great riches. Especially is it to be preferred to the appearance of riches, acquired with nothing down and nothing to pay for two months... Stewardship, not conspicuous consumption, is the proper relationship of man to material wealth."

The morality of losing your home

A very high percentage of all homeowners owe more to the finance company than their homes are worth on the market and have what are called upside down mortgages. Homes in my own neighborhood have lost over half their value recorded at the height of the housing bubble. Let me give you several different scenarios concerning the situation facing homeowners. Unfortunately, very little of the news coverage of this situation talks about the moral issues involved.

Scenario #1: Home purchased 10 or more years ago for $250,000. As the value of the home increased, on paper, the homeowners borrowed more against the "equity" of their home until they had borrowed over $300,000 dollars. They used the money for living expenses and to take several vacation trips. They were going to sell the home, but before they realized what was happening the market dropped. Their home is now likely worth less than $250,000. Are they now justified in taking a strategic foreclosure?

Analysis: Who took the risk that the market would fall? When the homeowners purchased the home did they expect home prices to fall? Was that a realistic assessment? If I buy a new car and finance the entire purchase price can I realistically expect to sell the car for what I paid? But you say, real estate is not like a car. Wrong. Real estate is exactly like a car. For too many years real estate agents have been saying the same inaccurate statement, "They aren't making any more real estate, values can only go up." The answer is they may not be making more real estate but they are making more houses. The housing market is just like any other market, it can get over built and over sold. But didn't the finance company take the risk that the value of the house might fall? Yes, but if you borrow money are you saying you have no moral obligation to repay the loan? Isn't that the moral equivalent of stealing? Couldn't both the homeowner and the finance company come to an agreement? Is the motive for moving a consideration of the morality of walking away from the obligation? Is there a moral obligation to repay a loan? Do I have to ask that question?

Scenario #2: Homeowners were living in a home that escalated in price during the boom. They sold their existing home at a considerable profit and used the money to make a down payment on a much more expensive home. Their mortgage was much higher than they could afford but they counted on the market to continue to rise and were expecting to flip the new home at a profit. Now, they have a home worth much less than the high equity to value mortgage they obtained. Are they now justified in dumping the home?

Analysis: How is this example different than the first one? Does the morality of allowing the home to be foreclosed change because these homeowners "can't afford"  the encumbrance? Does the morality of the situation change because the homeowners were involved in speculation? Who took the risk that the home would go down in value? Is the financing company morally wrong for loaning so much money against the property?

Scenario #3: Homeowner has lived in the home for several years and was employed at a well-paying job. The home was subject to an 80% mortgage and the homeowner had never missed a payment. Homeowner lost his job and is now finds it difficult to make a mortgage payment. The house has dipped in value and is likely worth somewhat less than the mortgage. He has had the home on the market for over a year. Is he now justified in walking away from the home?

Analysis: There is no moral issue with losing your property due to sickness, loss of work or other external cause. If you made payments on the home in good faith, both you and the finance company took the risk that the mortgage might not get paid. The finance company extended the loan based on its perceived value of the home. Should the homeowner continue to pay on the mortgage if he is able to do so when he could buy the same house for less money?  Is he justified in allowing the finance company to take the home?

All of these examples point out the moral dilemma of the housing downturn. At what point is a homeowner morally justified in walking away from an obligation to purchase a home? Is there a moral obligation to pay one's debts even if the original purpose for the debt no longer applies? Is this an issue that even raises to the level of morality? Is it immoral to steal? Is it immoral to cheat your neighbor? What about "Thou shalt not steal?" Exodus 20:15. 


In a Church News Editorial dated September 20, 2003, the commentator said, "When a widow lamented that a creditor would take her sons as bondsmen because she could not pay a debt, Elisha asked what she had in her house. The inquiry, it appears, was to determine what resources she had at hand to pay the debt. When she replied that she had nothing but a pot of oil, Elisha gave specific instructions; as she followed them, the oil was multiplied. Elisha then told her, "Go, sell the oil and pay thy debt, and live thou and thy children of the rest." (See 2 Kings 4:1-7.)

The Editorial goes on to say, "Elisha gave simple, practical counsel to the widow. There is no all-encompassing answer to the question regarding what people might do to pay off their debts today since circumstances vary. The moral of the biblical account, however, is universal: individuals are responsible for and should pay their debts. Elisha did not take upon himself the widow's debt, nor did he transfer to another the obligation to pay it. The debt was hers to pay."

Doesn't Elisha's council apply today to the homeowner?

Is poverty a lack of income?

I was on a major university campus recently and saw an "occupy" site with hand lettered sign proclaim a protest against the inequality of the economic system in the U.S. I thought, Hmmm too bad we didn't think of this back in the 60s. Protesting the economic system is very convenient, you can choose the time and place you want to protest with no fear that your cause will evaporate like protesting a war. What do you do when the war is over? Move on to the economic system and then you can have a readily available protest any time.

This got me thinking about poverty again. When I lived in Panama City, Panama, there was a section of the city called the Marañón. The average occupancy of the dwellings averaged 50 people per room. Yes, you read that right, per room. People would take turns sleeping and using the other facilities. One of my friends lived with his family in a small two room apartment with the parents, one grandparent, seven children and a few cousins. Even a small increase in income by any member of the family immediately became an advantage to the entire family. There wasn't an expectation that the family members would contribute to the welfare of the entire family, there was a social, cultural and strongly emotional reason why every member of the family contributed to the overall economic well being of the family. 


Ok, now let's contrast this with a recent report I read of a family. The husband was a professional. The wife was an accountant. They had two children. They lived in suburban house with the usual accouterments. The husband lost his job and then the wife lost her job. Voila. Instant poverty. They were immediately looking to the soup kitchens and food banks for support. They became a statistic in the U.S. Department of Health and Welfare's definition of poverty. Yes, they were poor. Very poor. In fact, they were poorer than my friend in Panama. Why? Because they lacked the support of a loving, extended family. Poverty is not where or how you live, it is the inability to maintain your family connections to the point that you can rely on your family in the case of a family crisis. Maybe the professionals had no family? What is more likely, they had a family but by cultural, social or other circumstances had let their family relationships lapse to the point where they did not have the support of an extended family. 


Poverty is not so much a matter of income. It is a matter of family. One of the largest parts of the national income in some developing nations is the money sent to family members from those working abroad. The crisis in welfare in the U.S. is not so much a crisis in income as it is a crisis in families. Attacks against the family in our society are destructive of the social fabric as well as the economic well being of the nation.

Learning to discern between needs and wants

The news reports of the past few days have been filled with incidents connected with the so-called Black Friday 2011. One interesting observation, I heard on the radio, said that spending was up but savings were down. In other words, people were taking money out of savings to spend on "deals." So what were the mobs of people out buying? TVs, cameras, tablet computers, laptops, games and toys just the things needed for people who are living on savings and out of work. One of the best selling items, that people waited in long lines to buy were different models of the Amazon Kindle. Guess what? They weren't on sale. All of the models sold at the regular price. I could order one today at exactly the same price they sold for on Friday.

It makes me sad to see this, especially when all of the comments are about how good the sales are for our economy! Here is a quote from the website, Provident Living:

We must learn to distinguish between wants and needs. We should be modest in our wants. It takes self-discipline to avoid the “buy now, pay later” philosophy and to adopt the “save now and buy later” practice.

Elder Joseph B. Wirthlin (1917–2008) taught: “All too often a family's spending is governed more by their yearning than by their earning. They somehow believe that their life will be better if they surround themselves with an abundance of things. All too often all they are left with is avoidable anxiety and distress” (“Earthly Debts, Heavenly Debts,” Liahona, May 2004, 42).

How many people's lives will be better because of what they bought on Black Friday? Can there be unlimited increases in the amount of consumer credit? The Federal Reserve Statistical Release states that overall consumer credit increased at an annual rate of 1 and 1/2 percent in the third quarter of 2011. Revolving credit has gone down slightly while non-revolving credit has risen.

Who are the poor?

In the U.S., the so-called poverty level is as follows:

The 2011 Poverty Guidelines for the 48 Contiguous States and the District of Columbia Persons in family Poverty guideline

• 1 person $10,890 
• 2 people 14,710 
• 3 people 18,530 
• 4 people 22,350 
• 5 people 26,170 
• 6 people 29,990 
• 7 people 33,810 
• 8 people 37,630 

For families with more than 8 persons, add $3,820 for each additional person. If you have a family, like ours, with seven children, you would have to make over $40,000 a year to be above the poverty level. Under these guidelines, I never knew I was poor for many of my working years. I am not making this up. From the U.S. Census Bureau, the median household income in the U.S. in 2009 was $50,221.00, meaning half of the U.S. population was below that figure. The figures for 2009 show 14.3 % of the population below the poverty level.

Let me contrast this with the average annual income of Mozambique, for example, which is estimated to be $900 per year. Their 9 person family would make about $8100 year, less than the poverty level for one person in the U.S. But more than likely, that 9 person family would only have one or perhaps two working people and the real income would be much lower.

Who are the poor? In the U.S. you can get food stamps if your household has less than $2000 in "resources." But not all things you own count, your home does not, your car or truck may not. The requirements generally follow the Temporary Assistance for Needy Families (TANF) guidelines. If you want to know how many different programs you could qualify for if you were defined as poor, look at the HHS.gov/Recovery.

I ask again, who are the poor? Think about this. If I made $10,000 a year as a single adult and managed to live and save $500 a year, I would soon fail to qualify for most federal programs. In other words, if I try to save myself out of poverty, I am penalized by the U.S. Government.

I will come back to this issue again.

Debt -- the real challenge to freedom

As I watch country after country succumb to overwhelming debt, I am often reminded of the old adage, waste not, want not. Our own country has a crushing level of debt but collectively, we cannot find the moral courage to live within ours means. The way to financial security is simple, spend less than you make. I am always impressed with some trivial, but significant examples of waste and improvident living. Almost every day, I drive by several "convenience" markets. I see cars lined up to purchase huge sugar water drinks and other even more harmful substances. A local thirst buster is about 80 cents. Many people drink two or more a day. Let's say conservatively, they spend $1.60 a day, five days a week. That is $8.00 a week, or $416 a year, almost one full month's payment on a car or house.

I am certain that that is not all they spend in convenience markets. If you tracked every penny that you spent for a whole month, you would probably find similar expenditures. But the interest on debt is even more insidious than purchasing junk food at a convenience market. You have nothing at all, not even sugar water, to show for your payment. We hear a lot about a housing crisis, there is no housing crisis, houses are fairly reasonably priced right now. What we have is a debt crisis. People who purchased a home and then dutifully paid the interest year after year without thinking twice about losing all that money to interest, now find themselves unwilling or unable to pay for a house that is worth less than they originally paid, and usually less than the balance due on the their long term mortgage.

Clear back in 1998, President Gordon B. Hinckley, a prophet of God, said, “We are beguiled by seductive advertising. Television carries the enticing invitation to borrow up to 125 percent of the value of one’s home. But no mention is made of interest.” He went on to say, So many of our people are living on the very edge of their incomes. In fact, some are living on borrowings. … I am troubled by the huge consumer debt which hangs over the people.”

President Hinckley quoted President J. Reuben Clark Jr., in the April 1938 general conference, said from this pulpit: “Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you” (in Conference Report, Apr. 1938, 103).

The first step in provident living is to live within your means.

Self Reliance does not mean a handout

Maybe only those who have faced serious hard times during their lives and had to "go it alone" can really understand the principle of self reliance. Many of our country's older people understand this principle, but in the face of the "me" generation, it is doubtful that younger people have even a passing understanding of the concept. Listening to the requests from charity food banks on the radio reminds me of how many people feel that they are entitled to support from the community or the government.

Bishop Keith McMullin, of Presiding Bishopric of The Church of Jesus Christ of Latter-day Saints said it well,

Many members live in cultures where it can be said that they live in a consumer age. When something wears out or breaks, many of us tend to throw the item away. When we want something we cannot afford, many of us tend to buy it on credit. A surprising number of young homemakers are not adequately skilled at cooking, sewing, gardening, and processing and storing food at home. Also, a surprising number of young breadwinners are not learning to save for the future and are allowing their family units to take on excessive debt. In a time of plenty, when one should consider laying up in store for potentially hard times, many of us consume everything we have—and more!

I heard an interview on the radio of a lady who had lived in her home for over 30 years and was now losing it to a mortgage foreclosure. How sad that she did not know or have the experience necessary to make decisions during those 30 years of home ownership to pay off her mortgage. 

Quoting further from Bishop McMullin,

Modern-day leaders have given specific, inspired guidance for our day about subjects ranging from home storage to debt. President Spencer W. Kimball was very clear about our duty to be self-reliant: “The responsibility for each person’s social, emotional, spiritual, physical, or economic well-being rests first upon himself, second upon his family, and third upon the Church if he is a faithful member thereof.

“No true Latter-day Saint, while physically or emotionally able, will voluntarily shift the burden of his own or his family’s well-being to someone else. So long as he can, under the inspiration of the Lord and with his own labors, he will supply himself and his family with the spiritual and temporal necessities of life” (Ensign, Nov. 1977, pp. 77–78).

Although these comments were directed at members of the Church, there is no reason that this principles cannot apply to everyone, no matter what their church affiliation. 

Here is another quote, this one from President Marion G. Romney, of the First Presidency back in 1982,

Since the beginning of time man has been counseled to earn his own way, thereby becoming self-reliant. It is easy to understand the reason why the Lord places so much emphasis on this principle when we come to understand that it is tied very closely to freedom itself.

On this subject, Elder Albert E. Bowen said, “The Lord must want and intend that His people shall be free of constraint whether enforceable or only arising out of the bindings of conscience. … That is why the Church is not satisfied with any system which leaves able people permanently dependent, and insists, on the contrary, that the true function and office of giving, is to help people [get] into a position where they can help themselves and thus be free.” (The Church Welfare Plan, Gospel Doctrine manual, 1946, p. 77.)

Many programs have been set up by well-meaning individuals to aid those who are in need. However, many of these programs are designed with the shortsighted objective of “helping people,” as opposed to “helping people help themselves.” Our efforts must always be directed toward making able-bodied people self-reliant.

 If you need a helping hand, look at the end of your arm.