Consumer bankruptcies soar 40% in 2007 -- Personal responsibility, anyone?

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I was watching the Suze Orman Show last night, listening to the story of a debt-burdened woman who filed for bankruptcy shortly before she received a large inheritance. Her rationale for the early filing was that she didn't want the creditors to take a big chunk of the money her father would leave her when he passed.

I couldn't believe that Suze Orman didn't rip into the woman's conduct. Stiffing your creditors to keep an inheritance is unethical at best, and borders on bankruptcy fraud -- Filing for bankruptcy when you know you will have the means to pay off your creditors in the near future.

What this woman did is not really substantially different from being $100 thousand in debt and then buying a lottery ticket and winning $100 thousand -- then filing for bankruptcy before cashing in the lottery ticket. Stiffing people when you can afford to pay them is immoral.

In any case, the Wall Street Journalrecently reported (subscription required) that consumer bankruptcy filings rose 40% to over 800 thousand in 2007. With the housing market in turmoil, this is sad news. But I have to wonder: How many of those people filed for bankruptcy after buying plasma TVs, Lincoln Navigators, and homes they couldn't afford?

If we're going to talk about new policies to help out struggling debtors, it's an important question -- we don't need to be helping out selfish morons and people looking to screw the lenders. The housing bubble was in part caused by an unprecedented level of mortgage fraud. Are we now entering an era of unprecedented bankruptcy fraud? We won't know for awhile, but it seems likely.

Perhaps part of the problem is that too many people no longer feel ashamed to file for bankruptcy. In our instant gratification society, which led people into HELOCs as a way to buy televisions (remember when borrowing money was something to be ashamed of?), filing for bankruptcy is no longer seen as that bad of a thing. People under 25 are the fastest-growing group of bankruptcy filers.

The point is, avoiding bankruptcy is usually fairly easy: Don't spend money you don't have! We should remember that before we feel too bad for all the debt "victims".

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