Asymmetrical Norms in Bankruptcy - Why Corporations Have the Upper Hand
What is an "asymmetrical norm" anyway? Simply put, it is when a different set of moral rules or encumbrances apply for the different parties with the same circumstances. For instance, corporations aren't burdened by the same set of moral considerations or expectancies that individuals are - they don't experience guilt, embarrassment or shame. So how does this play out in the world of finances and bankruptcy? Here is an example: Many people struggle too long with unaffordable debt, high interest rates, unbalanced budgets and creditor harassment. Why? Because they may feel guilt or shame when considering filing a bankruptcy to resolve their debts. In contrast, corporations do not have "emotions." Because corporations are unencumbered by moral considerations, they simply make the best decision in their own self-interest. A corporation would not be "embarrassed" by filing for bankruptcy, it would be viewed a financial tool to correct their finances, renegotiate their debts and come back stronger. Corporate creditors often take advantage of asymmetry of norms between the lender and debtor. They may use the threat of damaging a debtor's credit score to bring him or her into compliance with their demands. Many feel this gives your lender the upper hand:
"This imbalance is exaggerated by the credit reporting system, which gives creditors the power to threaten a borrowers' human worth and social status by damaging their credit scores - scores that serve as much as grades for moral character as they do for creditworthiness." *
So who is at fault for this imbalance? The issue is that individuals often look at financial troubles as a personal moral failure while corporations would not react similarly if they experienced similar issues. Corporations may exploit this personal guilt or shame to get what they want - compliance and payment. So it is clear that both parties contribute to these divergent viewpoints. Here is an example of this disparity explained by Law Professor Brent White of the University of Arizona in an article he wrote regarding the imbalance between norms governing lenders and homeowners that unfairly benefits lenders. Below is an excerpt from his paper discussing the question of whether it is morally acceptable to walk away from a mortgage obligation (i.e. foreclosure or strategic default:
"Regardless of the precise policy prescription, it is time to put to rest the assumption that a borrower who exercises the option to default is somehow immoral or irresponsible. To the contrary, walking away may be the most financially responsible choice if it allows one to meet one's unsecured credit obligations or provide for the future economic stability of one's family. Individuals should not be artificially discouraged on the basis of "morality" from making financially prudent decisions, particularly when the party on the other side is amorally operating according to market norms and could have acted to protect itself by following prudent underwriting practices. The current housing bust should be viewed for what it is: a market failure - not a moral failure on the part of American homeowners. That being the case, it is time to take morals out of the picture and search for an equitable solution to the negative equity problem."
What is the solution?Change can be made if even one party steps out of old patterns of thinking. Based on this, borrowers should:
- Make the most financially responsible choice to resolve their debts;
- Use whatever available financial tool(s) is best for them to achieve this;
- Consider long term financial stability and act in their own best interest;
- Not concern themselves with judgment or opinions or others or let false guilt deter them from finding debt resolution for better long term financial health.
We are not suggesting that bankruptcy is right for everyone experiencing financial difficulty. We certainly do not condone that anyone should deliberately make irresponsible financial choices knowing that they have the option to eliminate debt through bankruptcy. Frankly, we rarely see this with clients who we counsel. We understand that personal beliefs influence people's decisions. We are just suggesting that beliefs or biases should not prohibit you from making the most prudent choice for long term financial health. Our firm believes in debt resolution, plain and simple. This comes in many forms. When we meet with clients for the first time, our goal is evaluate finances and make the best recommendation for resolution. This may be:
We pride ourselves on making an honest assessment based on our client's best interests. Call us today at 866-261-8282 to speak to a licensed attorney or schedule a convenient time online. *Footnote: Quote from Brent White, University of Arizona Law Professor