Bankruptcy: Financial AND Moral - All in One Post!

Every time student debt forgiveness or any variant of said idea comes up, critics emerge from the rotted woodwork like cockroaches and spout the same refrain: these kids should have to pay / you borrowed the money, you pay it / there's nothing securing these loans / etc. It comes about in various permutations, but the motif of refusing to let student borrowers file bankruptcy almost always comes back to either self-perceived personal slights ("I paid my student loan from 1986 off and lived like a pauper...") or systemic concerns ("No one would give an unsecured loan like that!")

Well, all of those idiots should read this article about elderly people filing for bankruptcy to escape crushing debts when their income isn't what they expected it to be.

[P]eople 65 and older are the fastest-growing segment of the population seeking bankruptcy protection. . . .

Of course, the big question most seniors have when it comes to bankruptcy is: Will they take all of my retirement savings and leave me penniless?

"No," Connolly said. "Social Security and retirement accounts (up to approximately $1.1 million) are exempt from creditors so seniors will continue to have that stream of income."

What's more, many states have "homestead exemption" laws, which protect home equity from creditors. In Massachusetts, for example, you're protected up to $500,000.

So let's say Gertie, Age 70, has $1,000,000 in her IRA. She owns a home outright that is worth $400k in market value. She was successful until recently retiring. She was extremely prudent and has no debt. As a retirement gift to herself, she decides to take her excellent credit and go to Europe for two weeks and spend 20k splurging on herself. She gets back and suffers a heart attack and winds up 230k in medical bills.

Gertie has the assets to pay this off entirely and fairly comfortably. Her simple net worth is over $1 million. She's not going to live for much more than 15 years after this, and barring a severe penalty on distribution (I don't know how IRA's work completely if you're that old), she'll still have 50k a year to live off of.

But Gertie - who has unsecured debts of 250k plus interest - decides she wants to "leave a little something for the kids" and so she files bankruptcy and screws the credit card companies and the medical facilities who enriched and saved her life, respectively, on entirely unsecured credit. The rest of us pay for it.

Now consider Gertie's granddaughter Gertrude. I think you all know where I'm going with this. Gertrude takes out 100k to get an undergraduate education. In four years, she graduates magna cum laude from the big state university with a degree in business. She scores a 165 on the LSAT and gets accepted to a top-30 private law school, say Notre Dame, which is her dream because she's a lifelong catholic and blah blah blah. She excels at Notre Dame, makes law review, gets a federal court internship, and graduates in the top 7 percent of her class. She takes out 50k a year and graduates with a total debt around 250k. All of this is quite normal, and she thinks it's a good bargain because with her credentials the top firms in Chicago and Indy will fight for her. And they do - she lands a BigLaw job. It's great until she has a horrible car accident; not an expensive recovery, but her once-beautiful face becomes mangled and scarred, and the partners find a way to weed her out after 2-3 years.

She has about 200k in debt and zero assets. But unlike her grandmother, she cannot file bankruptcy to protect her future, even though she doesn't have the blessing of an approaching natural life expectancy threshold.

To those who are opposed to student loans having bankruptcy protection, what's the difference between Gertie and Gertrude? Both acted reasonably and had circumstances outside their control affect their financial situation, and both wound up with unsecured debts over 200k. Why should the one who has the assets to pay creditors in full be eligible to file for bankruptcy protection but not the one who hasn't a dime? Why does our system let elderly people who won't be around in two decades wipe the slate clean and leave money to heirs while we saddle young people with non-dischargable debt?

Anyone who believes this system of debtor relief has any notion of justice - or even rationality - behind it is not thinking clearly. We're supposed to have consistent laws in this country. A millionaire being able to discharge catastrophic medical bills (often brought by a less-than-healthy lifestyle) while students are stuck with their form of unsecured debt is patently unjust. It would take the brand of circular logic available only to Congressmen and partisan apologists.

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In the moral bankruptcy category, today I give you Liberty University School of Law, which was recently spotlighted in their local rag.

Central to the law school’s mission is the belief that God created law, and law is properly understood through a Christian worldview, Staver said.

Law without a Christian standard, Staver asserts, can become a “cold instrument of force.” ...

Professor Rena Lindevaldsen, who has a background in commercial law and religious right advocacy, teaches “Foundations of Law,” a required course for first-year students. It emphasizes the importance of limited government and the Biblical roots of the law. It also advocates an originalist approach to the Constitution, one that upholds the original intention of the founders, rather than viewing it as a dynamic document that can evolve over time.

“When you look back at any area of law, whether its torts or contracts or pick a topic, you can see that the Bible actually has principles that apply to this. It’s nothing new that we had to invent,” said Lindevaldsen, who has taught at Liberty since 2005 and earned her law degree from Brooklyn Law School.

There's so much more in the article that pretty much damns this place as a serious law school. And in the spirit of Christian fellowship, this school costs over $46,000 per year to attend. It was recently accredited (last 10 years), and your odds of finding a remunerative job are slim. Washington and Lee (ranked in the top 40) is an hour away. University of Virginia (T14) is an hour and fifteen minutes away. University of Richmond (top 100) is 2 hours away. And then there's the megalaw D.C. metro area.

I at least have to credit them for being seemingly honest on their employment statistics. Check this out:

That's brutal. I understand the desire for an organized church to have Christian lawyer-soldiers, but surely there's a better way of going about it than charging kids 50k a year to attend a place where only 47% have a real job 12 months later (and that's what they're reporting...). Ever heard of a scholarship fund? Personally, if I were a legal employer, any resume I got from this place would go straight in the trashcan, as I'm skeptical a brand new, Christ-first school can really teach the skills necessary to excel in the law, especially when the school is little more than a transparent vehicle for right-wing thought. I'm sure they know this, and with that in mind, it seems like a shameless cash cow to feed the University.

If you really wanted good Christian lawyers, wouldn't you be helping young Christians afford places like William and Mary or Virginia, where they can really do damage with a legal career? Maybe sponsor church activities for students already at those schools?

But it's not the first time evangelical Christianity has jumped on the profit wagon, and I'm sure it won't be the last.