Friday, August 21, 2009

Corporate vs Personal Bankruptcy Attitudes | Tamela Rich

Interesting blog post from Tamela Rich about the differing attitudes between personal and business bankruptcy.

Specifically, she wondered why there is such a stigma on individuals filing for personal bankruptcy as opposed to almost adoration for business that use bankruptcy as a financial tool.  This is an interesting and tough question, and deserves some analysis.

The reality is that there is a lot of mythology in business bankruptcy.  Most people really don't understand what is going on, and it seems quite above them.  That way, when it is used like a tool by the likes of Donald Trump, most people just shrug their shoulders, and strive to be that sophisticated.

In contrast, everyone can relate to someone filing personal bankruptcy.  Even people who make a good living often live hand to mouth at some point, and feel the financial cliff which is always lurking.  When someone choose to use bankruptcy to get out of a bad financial situation, they are demonized for not making good financial decisions. In my opinion, this relates to our culture of scarcity, which believes that what someone else is able to acquire is something that I can't have.  This "envy" is based on a belief that our society has limited resources.  If someone "else" files bankruptcy, it is affecting what "I" have.  In reality, the opposite is true, in that bankruptcy allows a crippled financial participant to get "back in the game."

To a lesser extent this is what is going on in the health care debate.  There is a belief that if everyone has access to health care, people with health care will someone loose what we have.

An efficient capitalist system does not require "losers" who are desolate, without food, clothing, health care, etc.  Quite the opposite, the healthier our population is, the more prepared we are as a society to compete globally.  We figured this out when the Russians launched Sputnik; and our current public education system is proof of what we can do.  To a lesser extent, personal bankruptcy is a necessary and important tool to assure that all members of our society can participate.  

Corporate vs Personal Bankruptcy Attitudes | Tamela Rich


  1. Great post Steven, especially the thoughts regarding health care.

    I was looking back at the businesses filing bankruptcy in the first half of this year and saw tons of big names. In addition to the big car companies, groups like Six Flags, The Phoenix Coyotes and even my beloved Chicago Cubs!

    And you're right, the stigma isn't there. People still ride roller coasters and root-root-root for the Cubbies.

    Personal bankruptcy rates continue to rise, and I wonder how much longer the stigma will last for personal bankruptcy.

  2. My comment is relative to Tamela Rich's posting in that the Nevada Labor Commission stated to me in a preliminary investigative hearing involving wages owed a fired employee that two managing dirctors of the Corporation should not pay the employee simply because each filed personal chapter 7's.

    Am I on the wrong planet or the only warm body the Labor Commission has over the fire?