Is It Too Easy To Go Bankrupt?

Do more bankruptcies increase the costs of our loans? One Fool thinks this question isn't looking at the whole picture.

In 2004, the law changed to make it easier to go bankrupt. Results of a recent Equifax survey showed that 65% of us think that achieving bankruptcy should again be made more difficult, and 70% feel that people who pay their debts on time are subsidising those who choose to go bankrupt.

So, to go bankrupt or not to go bankrupt? Is it right? This reminds me of an ongoing debate about reclaiming bank charges that's been popular amongst Fools at Fool HQ and on our discussion boards.

My view is that poor people who can't help going into the red, or people who slip up from time-to-time, or anyone at all frankly, have as much right to optimise their finances within the law as wealthy people who use various techniques in order to pay less tax than their poorer counterparts.

The rich cutting their tax bills in this way means that poorer people effectively subsidise them. The thing is, we must expect people to optimise their finances, because we all do it in one way or another. It's human nature. If you don't like the law, start a campaign or write to your MP. And good luck to you!

At the risk of an affluent colleague calling me a communist (again), I'm going to say the same about bankruptcy. If it's government policy to keep the economy growing by encouraging people to spend more than they earn, which I believe it is, then we have to expect more bankruptcies.

For those of you who think that bankruptcies increase the costs of your own loans, think about how it's also become much easier to get credit. There are more bankruptcies because there are more approved loans, not just because of looser laws. And the higher number of approved loans has enabled banks to make higher profits. Many more approved loans means that banks can carry a few tens of thousands of extra bankruptcies per year, and still offer you cheaper credit.

What's more, I suggest that the 56% of respondents to Equifax's survey who said getting discharged from bankruptcy within one year is too fast do not realise just how awful a heavy debt burden is. They clearly haven't read any of the stories on our remarkable Dealing with Debt discussion board. If I was to campaign on debt, it would not be to make becoming bankrupt harder. It would be to campaign for responsible lending to stop people being put in that dreadful situation in the first place.

As is often the case, poor people and rich people seem to get all the benefits, it's people in the middle, such as myself, who seem to benefit the least. But whilst gently ribbing richer folk, we should remember that poorer people really don't have it easy at all and that they, along with their children, find it hardest to succeed. On the other hand, all we have to do to have happy finances is be good Fools.

> Those of you who want to take advantage of cheaper credit, compliments of trigger-happy banks, compare personal loans here! Those of you wishing to get out of debt, visit our Get Out Of Debt centre.