There is a new post over at Credit Slips that discusses the fact that bankruptcies are starting to stabilize. I can tell you that, anecdotally, I am hearing that bankruptcies are starting to rise again. I don't think that they can rise too much -- mainly because of the extra cost (on average about twice what it used to) and time it takes to prepare. Another problem is the new re-filing time barriers and restrictions on the automatic stay in secondary filings -- one of the main reasons to file bankruptcy.
But, one of the main things that piqued my interest was the following statement:
"But when you account for factors like level of indebtedness, use of credit cards, and general economic conditions, the apparently large differences between the United States, on the one hand, and the UK and Japan, on the other, seem to disappear. The data suggest that the overwhelming majority of bankruptcy filings are inevitable, and that the principal effect of legal changes is to accelerate or defer the time of filing."
If the U.K. and Japan have the same debt levels and use of consumer credit, why would their bankruptcies be lower? There are several reasons. One, I believe, is obvious: the existence of national health care in the U.K. and Japan. As I have written previously, medical bills are the #1 cause of bankruptcy in the U.S. However, that is not the only reason. I remember discussing bankruptcy with someone from the U.K., and as I recall, bankruptcy does not provide as much protection as it does in the U.S. I am not familiar with Japan's bankruptcy laws. However, the U.S. bankruptcy laws have traditionally been more liberal because of the social and political value of providing a "fresh start." Another value in the U.S. is one of "economic dynamism" as opposed to social stability, which is traditionally the European model.
The question is: is there a "middle way," as the Scandanavians call it, between economic dynamism and social justice? If there is such a happy medium, can it be achieved in a politically polarized America?