For much of history, going broke was a crime. Defaulting on your debts could get you locked up, dismembered, banished, enslaved and even executed. In colonial Pennsylvania, a person who didn't pay up could be flogged while nailed to the pillory by the ear, according to Joseph Pomykala, economist at Towson University. That's not all, he adds. The ear could be sliced off, an "earmark" that warned future lenders to steer clear.
Yes, there is such a thing as progress. We don't cut off the ears of deadbeats anymore. The U.S. developed a very different approach to bankruptcy. How to treat going broke ranked highly among the major legislative battles of the 1800s. By the end of the 19th century, the law had evolved and reflected the influence of a powerful American idea: America as the land of the fresh start.
The entrepreneurial energy released by the opportunity for a second and third chance was a major force behind the dynamism of American capitalism. Debts should be paid, but a life shouldn't be sacrificed to the debt collector.
The emphasis on a fresh start dominated the major overhaul in bankruptcy law in 1978. However, the 2005 Bankruptcy Reform Act (the next major legislative overhaul) put a primary focus on debt repayment. Wrongly, in my opinion.
The you-can't-escape-your-debts situation is worst for America's poorest citizens. Far too many are living in the modern-day equivalent of debtors' prison. It's a state of affairs excoriated by George Mason University economist and Marginal Revolution blogger Alex Tabarrok. In a powerful blog post, he notes that "poor people who fail to pay even small criminal justice fees are routinely being imprisoned. The problem has gotten worse recently because strapped states have dramatically increased the number of criminal justice fees."
Many states even charge the accused for a public defender! What ever happened to the right to an attorney?
Most outrageously, in some states public defender, pre-trial jail and other court fees can be assessed on individuals even when they are not convicted of any crime. Failure to pay criminal justice fees can result in revocation of an individual’s drivers license, arrest and imprisonment. Individuals with revoked licenses who drive (say to work to earn money to pay their fees) and are apprehended.
We used to release criminals without a nickel or a nail but with an understanding that their debt to society had been paid. Today, we release criminals with a ball of debt and other restrictions that chains them to the criminal justice system and which can pull them back into prison long after their sentences have been served. Releasing people with little hope or opportunity for reintegration with civil society is good for neither the releasees nor society.