The Function of Bankruptcy Laws in Our Society

Susan Cabral

Accounting and Legal Studies Department                                


The purpose of this assignment is to have students  reflect on the function of bankruptcy laws  in our society and  determine whether the recent changes to the Bankruptcy Code frustrate or promote  this function. Questions are designed to raise moral and ethical issues as well as issues of social utility. (I hope to engage students at the high end of Bloom’s taxonomy of learning scale.)


Please read the profiles of bankrupt people from the Washington Post.   Then, answer all of the following questions:


  1. Did you come to the assignment with a pre-formed image of the “typical” person who files for bankruptcy? For example, did you make any assumptions about yearly income?  the kinds of purchases that resulted in the debt?  typical reasons why debtors fall behind on making payments? Please explain.


  1. Did you find anything particularly surprising in the debtor profiles that appeared in the Washington Post? Please explain.


  1. Do you think any of the debtors profiled in the article were abusing the Bankruptcy Code? Are there any debts on which they will be discharged under the old Code that you would require them to pay?


  1. Congress refused to make special provisions for consumer-debtors who incurred unmanageable debt because of illness, job loss, or divorce. Argue briefly for the rightness or wrongness of Congress’s decision.


  1. Make the best argument you can for allowing the debts of someone who has $1.5 million in an asset protection trust to be discharged .


  1. When you take out a loan or buy something on credit, the creditor loses the value of the money or goods he gives you. He accepts this temporary loss based on the promise that you will (re) pay him in the future. We normally think that keeping a promise is a moral obligation, excused only in the most extraordinary circumstances. A discharge in bankruptcy means that the debtor is excused from keeping his promises and the creditors’ losses become permanent. Although it is now legal for the debtor to walk away from his debts, is it also moral and ethical for him to do so? Please explain.


  1. What did you find surprising about the situations profiled in the Post?