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Bankruptcy Bias: Laws Written to Favor Corps Over Folks

PHOTO: Teresa Ghilarducci, chair of the economics department at the New School of Social Research, says bankruptcy law was written with a built-in bias that favors corporations and works against individuals. Courtesy of The New School.
PHOTO: Teresa Ghilarducci, chair of the economics department at the New School of Social Research, says bankruptcy law was written with a built-in bias that favors corporations and works against individuals. Courtesy of The New School.
November 11, 2013

SIOUX FALLS, S.D. - Working families trying to get out from under their debts don't get the help that corporations do from the bankruptcy laws, economists say. Some South Dakotans who've gone broke recently have asked about the difference between their situation and that of companies such as Northern Beef Packers, an Aberdeen firm that is still in court over its bankruptcy filing.

According to Teresa Ghilarducci, chair of the economics department at the New School of Social Research, the laws governing corporate bankruptcy were written to be fundamentally different from consumer bankruptcy laws.

"Individuals responsible for the corporation are often protected from any of the costs, whereas an individual who gets into debt, they're presumed to pay most of the cost back," she said.

Ghilarducci said a 2005 law made it much harder for individuals to shed their debts. She said it was written on the assumption that people trying to do that had done something wrong, but the laws do not assume that about corporations.

"The bankruptcy laws presume that the individual was stupid or immoral," as she described the situation. "Corporations are presumed to get into bankruptcy situations through no fault of their own."

She said big increases in student-loan and housing debt were among the causes of the financial crisis. Some people in the banking and financial industries have said consumers should be held responsible for living beyond their means, but Ghilarducci said many companies actually count on using the bankruptcy system to shift their debts onto employees, retirees and taxpayers.

"Corporations often use bankruptcy in their business model," she said. "People who didn't have any role in the corporation bankruptcies actually often have to pay the price."

She noted that the laws were written by people who were fully aware of what they were doing, in a climate where some groups have much more power than others.

"The bankruptcy laws for individuals have been made more and more restrictive. Individuals don't have the lobbyists that banks or corporations have," she pointed out.

More than a million Americans declared bankruptcy in the fiscal year ending October 1, about 1500 of them in South Dakota.

Jerry Oster, Public News Service - SD