What if US declared bankruptcy?

If millions of Americans filed for Chapter 11 protection, people would suddenly have more spending money and companies would start hiring again, one columnist writes.

By Kim Peterson Sep 13, 2011 8:06PM
What's the best way to get our economy back on track and put people back to work? Declare a national Chapter 11 bankruptcy, writes Brett Arends at MarketWatch.

The idea isn't as half-baked as you might think. Tens of millions of homeowners could default on their mortgages and millions more could file for bankruptcy, Arends writes.

Why? Because the real problem with our economy is debt. American households owe $13.3 trillion -- an amount that has doubled in the past 11 years. "We're hocked up to the eyeballs, and then some. We're at the bottom of a lake of debt, lashed to an anchor," Arends writes.

Say your household were a company deeply in debt, without any realistic way of paying it off. Companies file for Chapter 11 bankruptcy all the time. It isn't pretty, but it works. Why can't regular Americans do the same thing, Arends wonders.

Many mortgage contracts allow for default, he writes, and the banks can't go after retirement accounts and basic assets. Yes, your credit is shot, but that has already happened to millions of Americans who haven't been able to make their mortgage payments.

Going into bankruptcy would actually free up some spending money for people who have been trapped in debt, Arends writes. They'd be able to buy appliances, go out to dinner and go on vacation. They'd spend money, which would help the economy. That increased demand would cause companies to start hiring again.

"You want to break this logjam?" he asks. "Try Chapter 11 for the nation. Massive defaults. Clear the decks, clean the books."

But is it moral to do this? Is it fair for people to sneak out of their debt while others slog away to pay the bills? "We don't live in an economy based on morals and fairness," Arends writes. This is about doing what it takes to get the country back on track.


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121Comments
Sep 14, 2011 11:08AM
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You must be naive if you think these credit criminals are sitting at home eating pot pies, trying to find a way to get out of debt.  Most of them are in the position they are in because they lack financial responsibility.  They drive cars they can't afford, live lifestyles they can't afford...the house payment is the last thing on their mind.  I know people with multiple bankruptcies, do you really think a chapter 11 is going to change their irresponsible behavior?  We should stop giving credit to any moron with a SSN, make people work/save$$ to buy things in this country.  Everyone wants instant gratification with no consequences for failed obligations.  You want to give them all a do-over.... a second chance will only lead to more bad debt.
Sep 14, 2011 5:03AM
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Isn't this a really stupid article.  This is the equivalent thought process of a 5th grader, not of a professional finance news organization.  Once no one pays off their debt, the banks would all go under immediately, business couldn't get loans, and so nothing would be manufactured or sold here in order to increase consumer spending.  It would essentially be like it already is times 10.  If this worked then it would be working now since many are declaring bankruptcy, but it isn't doing anything except making things worse.  What a stupid article!
Sep 13, 2011 8:24PM
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The ancient Hebrews had a "year of Jubilee" every seventh year.  It is the historical precedent of modern day bankruptcy.  It is also the historical precedent for the concept of a statute of limitations.  On this year of Jubilee, all debts were voided.  Of course, there was indentured servitude to collect debts during the other years.  Remember the story of Jacob and Rebecca. 

 

The reason we can't have a year of Jubilee now is that banking relies on economic servitude to exist and our politicians use the banking system to control the citizens/subjects of the empire. Of course, the largest banks have enough influence over politicians to protect themselves by distributing friends of Angelo favors to the likes of Chris Dodds, Barney Franks, Mr. Obama, etc.   The Republicans are not innocent as they also have participated, but Wall Street recently has purchased far more Dems than  Reps.  ((77% of Wall St.'s contributions last election went to Dems.  Countrywide and Freddie Mac were the darlings of Barney and Frank and Obama received more Freddie Mac contirbutions/yr. than any other politician in history) 

 

It is rare to find a politician who does not have a price.  That is why we need to get rid of the Fiscal Committee of 12, institute term limits, end political parties and repeal the 16th amendment. and institute the Fair Tax. 

 

Sep 14, 2011 8:30AM
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The writer advises people to file for bankruptcy.  You'll have money to buy appliances, go out to dinner, and go on vacation.  Isn't that what got people in trouble the first time?
Sep 14, 2011 4:40AM
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Stop fighting all these wars, bring the boys home, save a few trillion and start taking care of the budget!
Sep 14, 2011 7:22AM
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The headline of this article, 'What if the United States should go bankrupt.' Then the text proceeds to talk of those people under insurmountable debt going bankrupt. No mention is made of the US government, which is what the title states. This obvious inability to follow ideas logically connected, step by resulting step, is common in the  world and rampant in Washington.

The president is a lawyer. The members of congress are mostly lawyers. Yet, they are unable to analyze and solve problems one logical step by the next logical step.

Is the fault with our schools from public to today's universities?

 

Sep 13, 2011 11:33PM
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Instead of having the American people declare bankruptcy, how about having the United States Government declare bankruptcy to the foreign banks and refuse to pay the illegal, contrived derivatives that is the root of all our debt concerns. Just tell the foreign banks, "nope we're not going to pay, what are you going to do...attack the greatest military in the world?"  The bankers are the ones behind all of this supposed debt.  One question...where in the hell is the 4.28 Trillion that we gave them 4 years ago ...oh wait..most of it is in offshore foreign banks that are privately held.  Simply the biggest heist in the history of robbery! Paid for by the US Gov.
Sep 13, 2011 9:37PM
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Going through personal bankruptcy is one thing but for a country, especially the USA it would be a disaster.  Reputation and integrity - doing what you said you'd do - is almost impossible to regain once it's lost.

I can't believe the author is a financial adviser.

Sep 14, 2011 9:43AM
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This idea makes no sense at all.  What happens to all of the companies that are owed all of this money?  Do they have to file bankruptcy or lay off 1/2 of their work force and create more unemployment because THEY have no operating capital? 

 

BTW - slimjim 1814

Get your facts straight before spouting off.  Ford was the ONLY US auto maker that DID NOT take any money from the government.  Chrysler and GM took all of the hand-out money they could get.  Congratulations to the Ford Motor Company for making it on their own!!

Sep 14, 2011 11:01AM
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Break the press that prints the stimulus money and put the politicians back to work helping the citizens gain some wealth. The easy way out for politicians has got to end. More free government counterfeit money (stimulus)has not changed the direction of the country as promised by Obama. What about seniors who built this place. Help the illegal's and shaft the seniors with no cost of living raise. Inflation has happened. Obama has illegal immigrants in his family - what the hell is this? Prejudice? No bankruptcy and more responsibility is needed.
Sep 13, 2011 10:01PM
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     That is one of the problems in our country, no morals or responsibility.  You made the debt., now pay it.  Next time don't take on more than you can handle.  Pay your bills and you will have good credit.  Stay within your means
Sep 14, 2011 10:24AM
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MH438, I agree that bankers' greed is also a factor in this big mess, but nobody is forcing anyone to buy what they can't afford.  Ultimately, it is the consumer's responsibility to measure what he/she is able to afford.  The banks and credit cards are just a tools to facilitate the transaction if you do not have the cash up front.  Misusing these tools can hurt.

 

We need to start making people responsible again for their actions, and all starts within the family educating the next generations to be responsible.  Families make the society, and the society makes the country.  If we do not have a solid foundation, the country will collapse financially.

Sep 14, 2011 1:42AM
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I agree that this is a bad article.  The reason individuals and governments are in debt is because of lack of responsibility.  In other words lack of morals.  And you are saying it is ok not to have morals?  Money makes the world go around, if you don't get paid what you are owed how are you going to pay the people that you yourself owe?  Vicious little cycle we are in!

 

As for companies hiring.  Yeah they are hiring.... robots/machines! 

Sep 13, 2011 8:52PM
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What a completely idiotic idea!  If you want to see lending and prosperity in America end forever, have millions more people become irresponsible deadbeats and file bankruptcy; take the easy way out, don't live up to your obligations.   Then no one will trust or lend anyone in America and we'll become a backward republic, not a leader of freedom.  
Sep 14, 2011 3:43AM
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100 years from now they'll still be pissed at the current generations without us stirring the pot any further. 

We need responsible solutions to our fiscal woes. Not, ding dong ditch solutions to passing the buck.

I already cry for my great grandkids who have yet to be born.  That future makes me ill.

 

Sep 14, 2011 11:06AM
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WOW.
The BS Pravda spin continues !!!!

Unemployed are good for the economy.
More debt will keep stimulating the economy.
BRIC countries making $1/hr will buy our goods.
Destroying houses so we can build more will spur growth....
More government union employees will grow the US economy.
Now bankruptcy will spur growth ?

Please stop the ignorant spins and pay for real reporters with a real journalism degrees and a competency about economics !



Sep 14, 2011 6:54AM
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This would be the single stupidest thing our country could do.
Sep 13, 2011 10:00PM
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This is a very dumb and very dangerous idea.  I was in Argentina during their default in 2001 - 2002, and it was catastrophic.  Bank accounts were frozen; no one had access to their savings.  Companies went bankrupt, and unemployment soared.  A huge number of private homes went on the real estate market, but virtually none were sold, since no one could get a mortgage.  By May 2002, thousands of Argentines had fallen out of the middle class and were sleeping on the streets.  Crowds would gather in back of restaurants waiting for the garbage to be put out, so they could scavenge food.  Crime soared, kidnapping gangs became a growth industry. Provincial governments had no cash to pay state employees, so they just began printing their own money.  I could go on and on.

 

Market Watch is connected to the Wall Street Journal.  I'm stunned that they're putting stuff like this out.

 

 

Sep 14, 2011 6:45AM
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The article makes sense from a business perspective. The problem that I have is the feds gave away billions to bail out car companies, and financial entities that went belly up. This was of their own doing. What has happened to the american people they didn't do---and these same people including yours truly are expected to bare the burden of this travesty. This being said; why weren't the trillions just given to the AMERICAN CITIZENS to pay off their debts?? Give everyone a clean record, save homes and hard earned savings--of course there would have to be stipulations to this to protect people from themselves but--get into trouble again and face the consequences.  To me this makes more sense then the other ways the feds have wasted OUR money.
Sep 14, 2011 12:14PM
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I was drowning in debt to no fault of my own, but didn't see a way out. My wife was about to have her paychecks garnished, so I filed Chapter 13. It's been 13 months and what a relief, I have my peace of mind again and did the right thing with 13 so I can pay back some of the debt I owe.
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