Should we have Bankruptcy laws?Submitted by BmoreBrawler on Thu, 07/12/2012 - 22:52
From this Rothbard article: http://lewrockwell.com/rothbard/rothbard190.html
"In a just society, then, only voluntary forgiveness by creditors would let debtors off the hook; otherwise, bankruptcy laws are an unjust invasion of the property rights of creditors."
He then goes on to call debtor's prisons "a bit" draconian but presumably better than what we have now.
Where do you fall on this issue? I personally support (sound) bankruptcy laws because:
1. No one should have all their property taken and starve to death for defaulting on a loan, which is really just a breach of contract.
2. Debtor's prisons and the taking of all property leading to sickness/death are cruel and unusual punishment, so to abolish bankruptcy and allow either "market" solution would necessitate a welfare safety net system to avoid unconstitutionality.
3. Bankruptcy laws were either not widely held to be violations of the substantive right to contract at the time of the founding, or considered a necessary and permissible violation of it, which is probably why it specifically enumerated in the Constitution.
4. The orderly repayment of debts is more just than first-come first serve because that system allows the debtor to pay back only favored interests(like family) in full rather than splitting the pot to reduce the damage from the default.
5. You could contract in loans to avoid an obligation to pay in full and basically contract-in your own terms of debt repayment, but risk-takers will not want the higher interest rates that come with that so we dont know how common that practice will be.