The short answer is, “becasue they can”. One of the most frequent, and frustrated, questions we get asked is; “How does a person go without paying their creditors, then show up somewhere with more money and income and business then they did before?” They don’t seem to lose out on the things others lose out on by paying their bills. What’s up with that?
In many cases, it comes down to one word: bankruptcy. When a person files bankruptcy, they may no longer be required or obligated legally to pay their creditors what they had promised to pay, to pay for the goods or services they received, or to make good on any promises they made. And they may be allowed to keep most of their personal possessions, including their home (or the equity in it, if any), a vehicle or two, tools of their trade, and many other personal items. The moral obligation may still remain, but Hey! What’s a few moral obligations between creditor and debtor?
The second half of the equation usually involves other creditors offering credit of some type to the debtor. Some creditors see people who have recently filed bankruptcy as a good risk, since they no longer have to pay for many of the things they received over the last few years. So they should have more cash-flow to pay new creditors! And tah-dah! They have credit!
Sometimes however, there are more nefarious issues at work, like fraud and deception. Some people actually will “lie” about what they have and where their money is! (Everyone GASP with me!) October 17, 2005 was the day the bankruptcy reform went into effect, and filings plummeted from earlier all-time highs (remember 2005? that was BEFORE the Great Recession). People are now required to attend 10 hours of counseling prior to filing, and they cannot “abuse” the system with filings/dismissals/re-filings like they could previously. Also, they cannot “load up” on credit card debt right before the filing date and not pay it back. All good things, but the rules are still very slanted toward those who would not pay back their creditors, who can walk away from their obligations without penalty, and continue to carry on multi-million dollar business ventures as if they are an honorable business person.
We in the collection business stand up for the rest of us: those who play by the rules, who understand the legal AND moral obligation to pay your creditors for the goods and services we receive, thereby keeping the credit-based economy we all know moving forward, while keeping overall costs lower for the rest of us. Do some people need to file bankruptcy? Yes. No one wants to go back to the days of debtor prisons. And yet in today’s world, the regulators feel it is better to punish the people who abide by the rules and reward those who want to cheat the rest of us.
So be wary: if you grant credit, it is very possible you could lose out on lots of money while the ones who take it from you go on about their life like nothing happened, even to the point of buying a golf course!