Texas bankruptcy’s bad rap undeserved: Here’s the bright side

There are a lot of people who have negative things to say about bankruptcy. The history of the bankruptcy process in the United States is a varied one. As far back as the early 1800s, no less than Alexis de Tocqueville, that French-born student of the American culture, offered that while Americans display great business sense and entrepreneurial spirit, they too often don’t pay their debts.

That rather negative view of consumer and business bankruptcy is one that has tended to linger over subsequent generations. But, as the country attempts to work its way out of the current Great Recession, there are a few pundits who seek to offer a contrarian view. They say that the relative ease of the U.S. system may be one of our culture’s great saving graces.

One commentator makes the case that while the premise of bankruptcy is failure, it is just that acknowledgement of failure that makes the American economy more resilient than most others. He says the U.S. system, unlike others, provides an fast and effective means for helping the economy recover more quickly when forces collapse and things go south.

As he describes it, when failure occurs, as it always does, it may create some difficulty for the debtor and the creditors. But bankruptcy acts to flush out the detritus quickly, allowing all sides to pick up what they can and move on to the next great opportunity.

From this perspective, the past few years of higher-than-usual bankruptcy filings have helped put America take position on the leading edge of the global economy’s recovery. If you doubt it, one just needs to look at the dilemma that economies in Europe find themselves in.

Individuals on the other side of the Atlantic don’t have the same tools for debt relief as are available here. They can’t stave off creditors under the protection of bankruptcy to regain their feet and rebuild. In Spain, bankruptcy or foreclosure is a permanent condition. And in Ireland, debt forgiveness may take 12 years to achieve and cost any disposal income one has.

Taken as a whole, it’s possible to argue that the structure of legal bankruptcy in the U.S. deserves to be viewed as a plus, rather than a negative.

Source: MarketWatch, “Why a flood of bankruptcies is good for America,” Michael Casey, Feb. 6, 2013

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