Singapore Announces Debt Repayment Plans - What About the US?
Jan 21st, 2009 | By Rob | Category: debt
When creditors last fall asked the U.S. Government to expand the time limits for the repayment of debt through their partial debt forgiveness plans, as well as extend the time for writing off debt forgiven through the plan, I wondered if the federal government would opt to clarify the options for debtors unable to pay all of their debts but unwilling to declare bankruptcy, reform the bankruptcy system to handle the problem, or simply leave the status quo alone. With the government’s rejection of the partial debt forgiveness plan proposed by consumer advocates and bank, I thought that we might see an increased push for some sort of bankruptcy reform to handle consumers who would like to repay their debt but are unable currently to make payments because of today’s economic conditions.
In Singapore, where bankruptcy filings have grown 3% over the last year, compared to the 30 percent or more growth in the United States, the Singapore government announced that they are attempting to help its citizens work out repayment plans between creditors and debtors for debts up to $66,000 outside of the bankruptcy process. You can read more about it in this article in Bloomberg.
One of the reasons that the Singapore government adopted the plan, according to the article, was to help avoid the “social stigma” of bankruptcy. I have no doubt that there is a similar social stigma in the United States. No one wants to be thought of as the person who could not repay their debts and needed a government handout. Yet, at the same time, the country may be better off if individuals who are thrust deeper and deeper into debt are given a chance to start over. For those that are willing to do so, bankruptcy is that process. But for those that are too proud to declare bankruptcy, or simply can’t afford it, or just need a bit of a helping hand, there should be something better waiting than ten years of phone calls from debt collectors and a bad credit report.
If a person is in over their head, I would prefer that they go through the bankruptcy process and get a fresh start. But that’s easy for someone not facing calls from debt collectors to say. In the middle of the auto bailout, the Big Three automakers rejected the bankruptcy process because it would condemn them to close their companies. Circuit City, which surely had hopes of exiting from bankruptcy, is now liquidating its stores and leaving 34,000 unemployed. With these examples from the business world, and the social stigma against bankruptcy, I’m not surprised that people do all that they can to avoid bankruptcy.
For those that are looking to debt forgiveness as an alternative to bankruptcy, there should be a system in place that provides some consumer protection against debt issuers and collectors seeking the return of their money owed. For many, bankruptcy used to be that process. If it isn’t anymore, then the government needs to work out a new system.
Unfortunately, amidst the transition of government to the Obama Administration, the TARP bank bailout, the auto bailout, and debate over mortgage modifications and foreclosure relief, the federal government has been facing other problems that have its attention. The change in credit card regulations by the Federal Reserve will make it easier to handle debt in the future, but it won’t do much to help those that already have $25,000 in credit card debt pay it down. Just like the $600 economic stimulus checks, it’s a drop in the bucket to people with financial problems. Let’s hope President Obama and Congress are able to get to the problem of credit card debt before it overruns consumers and throws the banks into a new round of financial turmoil.
Update: The Wall Street Journal has an article here on the growing pressure for bankruptcy reform for business filings.