 by Steve Rhode July 30, 2002
Debt problems cannot be explained away by saying that the credit card companies are marketing too much or that bankruptcy laws are too loose. Years of experience working with people in financial trouble demonstrate time and time again that money problems are never about the money. Money problems are a symptom of bigger life issues. Here is the crux of the problem: bankruptcy is a legal, financial solution that people use to solve non-legal, non-financial issues. The inability to pay the bill is the symptom not the diagnosis. It seems that we are always more comfortable trying to identify who is the victim and the perpetrator in cases of financial troubles. We find comfort in finding someone to blame. Credit card companies and their extensions of credit are often erroneously cast as the cause of our nations consumer financial problems. Bankruptcy reform should not create a system that extracts money from debtors without ever considering the underlying reasons why they got into trouble in the first place. Unless you discover why a debtor's expenses exceed income, bankruptcy will be a way to make temporary reductions in expenses but will do nothing to change the reasons that brought bankruptcy filers to the financial edge. The financial industry loses more than $40 billion every year to bankruptcy. It's difficult to quantify what individual bankruptcy filers lose, but the financial and emotional costs are big. Our research shows that they pay as much as 70 percent more for just auto and home loans. Bankruptcy also increases the price a person pays to lease a car, rent an apartment and purchase insurance. The emotional cost can be even higher. People lose self-esteem and confidence, personal characteristics that trickle down to affect them in many ways. Some stay in low-paying jobs thinking that new employers will not hire them. Others think they are stuck having to accept high interest rates after bankruptcy because their credit is trashed. Some of the largest congressional supporters of the new bankruptcy reform legislation feel that it is needed to restore a stigma to the bankruptcy process. They feel that people do not feel shame as a result of filing. Nothing could be further from the truth.
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