08 August 2012

Bankruptcy Blessings

Several years ago I wrote "The Missing Piece of the Puzzle: Wage Priority in Bankruptcy" (abstract here). I argued that we cannot understand the genesis of the priority for unpaid wages over most other forms of unsecured debt in bankruptcy cases without understanding the evangelical Christian ethos that was "in the air" in 1841 when the first modern bankruptcy law came into being. The moral concept of jubilee taken from the Hebrew Scriptures was explicitly part of the rationale of many for offering voluntary bankruptcy relief and the strictures of the same text about paying workers' wages was in the background of the wage priority .

That the concept of bankruptcy and the discharge of debts was advanced by Evangelicals should not be surprising. See "Law and the Christian Story" by the late Bill Stuntz for why this should be.

But for another perspective on the utility of bankruptcy you might want to look at this piece in last week's The Economist that reports that the European Commission has concluded that punitive (and slow) European insolvency regimes are one reason Europeans are so risk-averse, which in turn helps explain Europe's lack of entrepreneurial spirit.

There are, of course, other reasons including lack of venture capital to go the few successful European start-ups but one can only wonder how many Americans owe their success (or their employer's or their supplier's or their customer's) to the fresh start provided by  liberal U.S. bankruptcy law. In other words, not only is bankruptcy good, it's good for you.

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