Comments on: “Are Mormons Bankrupting Utah?”

By: Seth R.

Seth R. — Thu, 21 Jun 2007 17:13:28 +0000

Oops. #54 should have read “I won’t pretend I’m NOT concerned.”

By: Bill MacKinnon

Bill MacKinnon — Thu, 21 Jun 2007 17:00:07 +0000

Seth and Nate (#54 and #55), thanks for your observations, which help me to understand better the lawyer’s point of view and what I would have to guess is partly a shift in attitudes/perceptions that’s generational (with me trying to cope with my status as part of the [almost] over-the-hill crowd). In the course of my various experiences, I’ve spent a lot of time with cops, physicians/nurses, and military types, all of whom have had to build defense mechanicisms to cope with their constant proximity to violence and death and all of whom have also somehow sorted out how to retain a sense of compassion and honor without becoming either hopelessly callous or disfunctional on the job. I would hope that familiarity and even comfort with the world of bankruptcy procedures and the court system doesn’t completely lower the barriers that sometimes should reasonably inhibit people through a sense of personal honor either in the context of a corporate officer or family finances.
Nate, your observations about the importance of a climate that tolerates failure in order to stimulate success squares not only with my personal experience but that of everything I’ve ever read about the qualities and experiences that have gone into making successful entrepreneurs specifically and accomplished people generally. (Last night’s reading also included an account of General John J. (“Black Jack”) Pershing’s conduct of World War I. When responding to his very talented chief of staff’s plea for a combat assignment in France, Pershing gave this officer command of a marine brigade, told him that he’d undoubtedly make mistakes in getting this new unit “bloodied,” but that he didn’t want to see too many mistakes made.) I’d just make the point that the value of failure for people that ultimately become successes comes from the lessons learned, and that some of the lessons sometimes come from the pain of the accountability involved. If there’s no accountability — such is in no-fuss bankruptcy proceedings — there may not be a lesson learned.

By: Nate Oman

Nate Oman — Thu, 21 Jun 2007 14:22:15 +0000

Bill: Even on the issue of reputation, I am conflicted. On one hand, I think that a reputation for commercial honesty is extremely important for both ethical and practical reasons. On the other hand, especially in the corporate context, I think that a strong reputational sanction for bankruptcy may be counterproductive. For example, there is good evidence that one of the great advantages that Silcon Valley in general and successful tech companies like Apple have is that they don’t strongly stigmitize failure. If you do a start up and the start up goes bust in Silcon Valley, you are not regarded as a commercial leper. Rather, the assumption in many quarters is that the failure was probably a good learning experience and added to your value as a potential employee, business partner, investment, etc. The advantage of these norms is that they foster a climate of risk taking and entrepreneurship. You don’t see the same thing, for example, in France where business bankruptcy is extremely difficult, carries a very strong stigma, and can even result in criminal sanctions.

By: Seth R.

Seth R. — Thu, 21 Jun 2007 13:54:47 +0000

Bill, you’re right. I am more likely to be less concerned with the process simply due to familiarity. I also won’t pretend that I’m concerned. I do see a disconnect between the younger generation and the older. The older generation typically seems to be a bit more upset about their situation than the younger. But that’s a broad generalization on my part based on anecdotal evidence (and who am I to say what my clients are really thinking anyway?).

My experience is that sophisticated lenders really don’t care whether you file or not. They’ve averaged things out. In fact I’ve even heard of some major lenders flatly refusing to negotiate with some debtors and telling them bluntly to go file bankruptcy. As for collection agencies, they may try to lay guilt trips on their targets. But debt collection is a pretty rough business and I guarantee you that they aren’t too busted up over a non-payment either. There’s very rarely anything personal about this business. I suppose that’s a loss for our society.

Like Nate though, I agree that involuntary creditors are a different story – such as tort victims, child support recipients, and such. As for small, unsophisticated, voluntary lenders – they’re a pretty rare breed nowadays.

By: Seth R.

Seth R. — Thu, 21 Jun 2007 13:40:32 +0000

[Reference to previously deleted advertising comment removed]

As far as the debt management industry is concerned, tread lightly. There is a ton of fraud going on in this industry. For many debtors, the companies add no extra value, you sign up for their services, pay them your money, and all they do is make phone calls you could have made yourself.

These people, by law, are not allowed to give “legal advice” (although many violate the law and do it anyway). And when they do give advice, it’s often bad advice (such as using home equity you could have saved completely in bankruptcy to pay off credit card bills).

Furthermore, a great many of these agencies are receiving financial kickbacks from major lenders like MBNA. The “non-profit” label is largely a mere IRS formality. The financial kickbacks often provide these organizations with a direct incentive to steer people into inappropriate debt repayment plans and discourage bankruptcy.

They also claim to have particular sway with creditors. I think this is largely bogus and they don’t have any more influence with your creditors than you do. And many major lenders won’t even negotiate with you anyway.

To top it off, be aware that when one of your creditors agrees to “write-off” or “forgive” a portion of your debt, the IRS considers that “taxable income.” Debts discharged in bankruptcy are not considered “taxable income.”

If you have a manageable amount of unsecured debt that you are able to pay off in about 5 years and don’t know where to start, a reputable debt management organization can be a useful option (and there are some good ones out there). But if your unsecured debt load is bigger than that, you should probably be talking to an attorney, not a debt counselor.

Yes, there are good debt management organizations out there. But the industry is highly unregulated and rife with abuse and fly-by-night operations that take your money and then skip town. As I said – tread lightly.

By: Bill MacKinnon

Bill MacKinnon — Thu, 21 Jun 2007 13:31:15 +0000

Re Nate’s #52 (“…in a world where the most valuable asset most people have is their labor”) I think we’re overlooking the even more paramount importance of reputation, either as a corporation or an individual. Like Nate, I wouldn’t subscribe to the ethic of an older generation that bankruptcy is “dishonorable” (I think often it’s just an inescapable, calamitous necessity) but in my view it certainly shouldn’t be viewed as just a ho-hum part of the economic/legal/reputational landscape. It’s a serious step and, if taken casually/cavalierly rather than as a step of last resort, I worry about the erosion of personal and reputational standards of behavior. Just because those left holding the bag are usually corporations and financial institutions shouldn’t justify a casual approach to bankruptcy.(Are we hearing on this subject more from attorneys comfortable with the bankruptcy process and therefore more apt to view such an event in a fashion more relaxed than non-lawyers?) How should we feel about the creditors’ position when an individual files for bankruptcy, emerges from the proceeding, and goes on to make a pile? Last night I read about Harry Truman’s 1920s brush with business failure re his famous Kansas City haberdashery. I don’t know whether he and his partner filed for bankruptcy or wound up the business in some other way, but Truman took on $30,000 (in 1920s dollars) of debt to pay his creditors over time. “He who steals my purse steals trash, but….”

By: Nate Oman

Nate Oman — Thu, 21 Jun 2007 12:42:06 +0000

I am not so sure that bankruptcy is dishonorable. One advantage of generous bankruptcy laws is that they tend to make people less risk adverse. It may will be that this lower risk adversion increases overall social wealth (afterall society diversifies away the risk). If you look at continental Europe, for example, they have very harsh bankruptcy laws compared to the U.S. One result is that entrepreneurs and businesspeople tend to be more risk adverse and there are far fewer start up companies. For my money, I think that high corporate mortality rates and the ability of people to start over relatively easily is good for the economy. With Seth R. I don’t shed many tears for sophisticated lenders (involuntary creditors like tort victims are another matter), but I also don’t view them as the scum of the earth. On the whole, I think that the democratization of credit is a good thing, particularlly in a world where the most valuable asset most people have is their labor.

By: Peter LLC

Peter LLC — Thu, 21 Jun 2007 11:58:24 +0000

“Regarding health care, you get what you pay for. If it saved someoneâ€™s life, why shouldnâ€™t they pay a pretty penny for it.”

That may be true in certain countries, but I doubt the inefficient US health care system is really capable of matching costs with benefits.

But there is a third way that makes excellent health care available to everyone (though admittedly super-duper, platinum-coated health care is reserved for the rich no matter where one lives) without bankrupting any of them. 9% of my (and every other employed person’s) gross salary is deducted, matched by my employer (required by law) and transferred to the good folks at the local social insurance group. When my life needs saving, it costs nothing in additional pennies, pretty or not. If I’m not sick, I continue to pay (the familiar insurance principle). If I were unemployed, I would continue to be covered. But since I like consumer goods and no one gives them to me when I am out of work, I stay employed, healthy (all that food on the table and sporting equipment), and solvent.

The system does run a deficit, which could be covered in its entirety if all employers met their legal obligations to provide accurate and timely transfers. In other words, it’s not broke, but does suffer from dishonorable and illegal business practices.

By: Seth R.

Seth R. — Thu, 21 Jun 2007 04:25:30 +0000

I don’t know, but the entrepreneurial impulse seems fairly robust in Utah.

Considering the high failure rate for startup businesses (I’m pretty sure it’s at least over half), this could contribute to the insolvency rate.

I’ve always personally felt that the bankruptcy system was one of the prices we pay for a viable entrepreneurial system.

By: Bill MacKinnon

Bill MacKinnon — Thu, 21 Jun 2007 00:06:38 +0000

In the Summer 1987 issue of “Dialogue” I wrote a review essay titled “Move Over Fortune ’500′” that dealt with Heinerman and Shupe’s conspiracy-oriented 1986 book, “The Mormon Corporate Empire.” In the course of that essay I mentioned two quite different studies dealing with financial behavior in Utah — principally commercial fraud — not mentioned in the book that may possibly have some bearing on the propensity of Utahns to file for personal bankruptcy in this day and age:
(1) An article in the June 20, 1983 issue of “Forbes” (p. 33) that noted that in recent years at least ten separate swindles had been uncovered in Utah invvolving more than 9,000 people (then 1% of Utah’s adults) and losses estimated at more than $200 million. In asking the “why” question, the “Forbes” reporter described Utah as “fertile soil for swindles” because of excessive trust among LDS Church members: “Most of those bilked are Mormons, and the bilkers, too, profess to be upstanding members of the church and use church connections.”
(2) The December 1984 report of the Securities Fraud Task Force commissioned by Gov. Scott M. Matheson that noted with alarm that “the appeal of Utah to legitinate new business has been seriously undermined because of its unfavorable reputation for securities fraud.” The task force then went on to note that “Utah’s citizens also appear more susceptible to fraudulent schemes than people in most other states…[They] rely…on personal and religious relationships. Several investment schemes have relied directly or indirectly upon religious affiliations…members of the Church of Jesus Christ of Latter-day Saints are particularly susceptible to various schemes because faith in one another spawns promoters [who] take advantage of ‘the Mormon Connection.’ ”
These two reports — one by a leading national business magazine and the other from a Utah gubernatorial task force — are now more than twenty years old. Is the commercial fraud profiile of Utah any different today? In light of this admittedly outdated material and discussion here re a recent disproportionate propensity of Utahns to file for personal bankruptcy, is there something going on in Utah’s financial culture worth thinking about? Or is this a “no problem” situation?