Bankruptcy in a free society.

[Individualist]

What form would bankruptcy take in a free society?

[MacFall]

If a person just failed to pay their bills because they were lazy, or because they borrowed more than they could have repaid, then that person is essentially a thief. To insure that sort of circumstance would be essentially outlaw protection. Of course a firm could offer insurance against laziness or financial ineptitude, but that doesn’t seem likely at all. And even if they did, all they could do would be to pay the overdue bills for the insurant. If they tried to protect the insurant from having to pay at all, they would be outlaw protectors. Or rather, they most likely would do no such thing, because nobody is going to go to war for a deadbeat against a company paid by productive members of society.

If a person is unable to pay his debts because of some hardship beyond his or her control, then his insurer will pay them for him. Such hardships would need to be proven, of course, and “debtor’s insurance” would probably not be sold cheap. However, being no fault of his own, external hardships would not affect his credit.

[ama_gi]

@Richard Chambers

What form would bankruptcy take in a free society?

The borrower would simply refuse to pay. The only recourse the lender would have would be whatever was actually written in the contract. The lender could not take your house, or garnish your wages, or put a bad mark on your credit score, or put you in debtor’s prison, unless they were expressly permitted to do so in the contract you signed.

[MacFall]

Of course, very few lenders would lend without such penalties stipulated in the contract. And those that did would be taken advantage of until they were run out of the market.

And actually nobody needs your permission beforehand to wreck your credit score. A credit score is a reputation, and you do not own your reputation, as it consists entirely of other people’s opinions of you.

[ama_gi]

@MacFall

Of course, very few lenders would lend without such penalties stipulated in the contract. And those that did would be taken advantage of until they were run out of the market.

I know, but my point was they could do only what is written in the contract, and no more.

And actually nobody needs your permission beforehand to wreck your credit score. A credit score is a reputation, and you do not own your reputation, as it consists entirely of other people’s opinions of you.

I think that lenders would prefer credit scores set by impartial arbitration agencies rather than the lenders themselves, given the unbiased reports would be more accurate. Lenders would want accurate information, not information provided by their competitors.

But that is just my prediction.

[MacFall]

@ama gi

I know, but my point was they could do only what is written in the contract, and no more.

Yes. I meant only to further clarify the point for Mr. Chambers.

I think that lenders would prefer credit scores set by impartial arbitration agencies rather than the lenders themselves, given the unbiased reports would be more accurate. Lenders would want accurate information, not information provided by their competitors.

But that is just my prediction.

I agree.

[Individualist]

Okay, that’s what I thought. I just asked because Rothbard said that bankruptcy laws are not applied to banks as they are to other companies. But I guess he wasn’t saying that modern bankruptcy laws were just, but instead saying banks shouldn’t get preferential treatment.

[MacFall]

I believe you’ve hit it.

[billott1]

This is an easy one. Bankruptcy in the current form for individuals in a Liberterian world need not exist. If people found they could not pay their debts then they would have to abide by the terms in their contract with the lender. The lenders could dramaticaly reduce the number of defaults by including the following in the contract with the lendee:

1. Purchase insurance from the lender to cover defaults. This may be in the form of a higher principal, higher interest or a charge on top of the amount.

2. Have collateral agreeable to the lender to cover the loan. Note this is real collateral not the junk that the Fed and other regulators force lenders to accept.

3. Purchase insurance from outside providers agreeable to the lender. This insurance could be from a co-signer.

4. Prove competence in paying down the debt. Lenders are more willing to lend to folks who have paid debts on time in the past.

5. Pay a percentage of price up front.

6. A combination of 1 to 5.

You can see that Bankruptcy in its current form is an unecessary sham brought on by fractional reserve banking and government lending of last resort. Actually government wants you to borrow like crazy until you have to declare bankruptcy, wait two years and repeat. It does make laywers wealthier and courts AND BANKS too. Under the current system, people are ASSISTED in taking loans that they have not paid up front money on or have other collateral for. Under a sound money system with free banking this would not be possible.

[dbooksta]

But can an individual take out a contract in which he essentially surrenders his liberty if he fails to comply? I.e., can two parties enter into and enforce a contract in which one agrees to be the perpetual slave of the other if he defaults?

[Stranger]

@dbooksta

But can an individual take out a contract in which he essentially surrenders his liberty if he fails to comply? I.e., can two parties enter into and enforce a contract in which one agrees to be the perpetual slave of the other if he defaults?

How would someone enforce slavery upon someone else cost-effectively?

[Individualist]

@dbooksta

But can an individual take out a contract in which he essentially surrenders his liberty if he fails to comply? I.e., can two parties enter into and enforce a contract in which one agrees to be the perpetual slave of the other if he defaults?

Well, legally, yes. Someone doesn’t have right to liberty to the extent he fails to fulfill his monetary obligations.