MORALITY OF PERSONAL DEBT FORGIVENESS

Jack F. Williams^1_
Visiting Professor
St. John 's University School of Law

We live in a competitive society. We value competition in all aspects of our lives, from education to business to entertainment. Competition is a study in relative power. Winners have it; losers do not. In this society, we have a strong ethos to measure power by money.

Competition brings out the best in people. The drama of overcoming obstacles to succeed in some tangible fashion is compelling. Competition, unfortunately, also brings out the worst in people. People cheat each other, cheat friends, cheat family, and cheat themselves, all in the name of power.

We are indoctrinated to believe that with competition must come winners and losers. To be sure, we can dress up the conflict with neutral language. But so long as one trophy is bigger than the others, we will have winners and losers. Of course, this does not have to be the case. However, again, our ethos demands that if we play the game of competition, we must employ the language of competitors.

Bankruptcy is designed to address partially this imbalance of power; in particular, the imbalance of power between creditor who has it, and debtor, who doesn't. Bankruptcy law recognizes what the Holy Scriptures (the Old Testament) warned us all about - creditors have tremendous power over their debtors. Bankruptcy attempts to alleviate this power by sheltering debtors and their families through a series of protections, including the discharge of debts and the ability to exempt certain property from creditors.

Bankruptcy does not forgive debt. It grants a discharge to the honest but unfortunate debtor. There is a significant moral difference. A discharge simply prevents a creditor from enforcing the debt against the debtor or the debtor's property. It does not prevent a debtor from repaying the debt; nor does it prevent a creditor from recovering the debt from some third party like a cosigner or guarantor.

Interestingly, the language used in the section in the Bankruptcy Code on discharge is written in a neutral tone. This is in keeping with an attempt to tone down the stigma historically associated with a bankruptcy filing. The example of the change from the term bankrupt to debtor comes to mind. Yet, we are watching one of the great morality debates going on right now in Washington. For all the jockeying and positioning, we can still isolate some interesting points.

Moral Responsibility of the Debtor

1. A debt is a contract and a contract is a promise. We should keep our promises.
   
2. It is an independent good to live within one's means.
   
3. One should be responsible for one's actions, including taking on debt that cannot be paid back.
   
4. Bad things happen to good people; people are fired, get hurt, get sick, and lose income and with it, the ability to repay debt.
   
5. A legal discharge is not congruous with a moral absolution.
   

Moral Responsibility of the Creditor
Notice that my points appear to be one-sided. This is a one-armed debate. How about considering the moral obligations of creditors ranging from:

1. It is wrong to entice one to take on too much debt.
   
2. It is wrong to be dishonest in advertising.
   
3. It is wrong not to police your potential lender base.
   
4. It is wrong to harass your debtor.
   
5. It is good, very good, to forgive a debt owed by someone who does not have the ability to pay.
   

Scriptural Response
The issue of debt forgiveness pits a number of camps against each other. The issue poses difficult policy conflicts that are not easily resolved. Scripture, however, makes it clear that a creditor, some one positionally more powerful than his debtor, should do everything possible to keep from embarrassing or crippling his debtor, including forgiving the debt. After all, one with faith in the Almighty who forgives a legitimate debt owed by one who cannot possibly pay, is repaid by the Almighty.

^{1 _}Jack F. Williams is a Professor of Law at Georgia State University College of Law in Atlanta, Georgia. During the academic year 1999-2000, he was a Visiting Professor of Law at St. John’s University School of Law where he taught in the first LL.M. Graduate Program in Bankruptcy and Business Reorganization in the country. He also teaches in the Internal Revenue/NYU School of Law Continuing Professional Education Program, and was selected to teach in the first Chief Counsel Tax Law Course via the IRS Satellite Network. Along with teaching he has also served as the Tax Adviser to the National Bankruptcy Review Commission and as Chair of the Tax Advisory Committee to the National Bankruptcy Review Commission. He holds a Juris Doctor from the National Law Center, George Washington University, Washington, DC.

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