Scholars Discuss Ethics of Bankruptcy

Do people have moral obligations to repay their debts? What makes a lender ethical or unethical? Should borrowers be forced to repay loans with excessive interest?

Scholars from universities across the country gathered at Georgetown University’s McDonough School of Business to debate those questions at the Roundtable on the Ethics of Bankruptcy on April 1. The roundtable, convened by the Georgetown Institute for the Study of Markets and Ethics (GISME) and co-sponsored by the University of Illinois’ Program in Law and Philosophy, brought together more than a dozen law, ethics, business, and philosophy faculty.

“GISME aims to discuss important topics that are generally not given enough attention in academic circles,” said Michael Douma, director of the institute. “By helping to facilitate this roundtable, the institute provided a rare opportunity for individual scholars of the ethics of bankruptcy to participate in a common discussion.”

During the day-long event, the faculty debated and discussed their peers’ academic papers, all of which focused on aspects of the ethics of debt. They explored the implications of “zombie debts” that “rise from the dead” to haunt debtors despite all reasonable efforts to settle them. They also debated the relationship between the rationale for corporate bankruptcy and the rationale for consumer bankruptcy. Finally, they debated the theoretical underpinnings of the fresh start doctrine that affords individuals the ability to escape from debts that were fairly and freely assumed by contract or properly shouldered through tax law or tort judgments.

“The consumer credit markets are vast, and many hundreds of thousands of consumers file bankruptcy each year, but regulation of consumer credit, credit reporting, and consumer bankruptcy tends to be under-theorized,” said participant Ralph Brubaker, Carl L. Vacketta Professor of Law at the University of Illinois College of Law. “Because the roundtable brought together scholars with varying philosophical and theoretical perspectives, it facilitated a lively, fascinating, and productive discussion regarding how best to think about regulating consumer credit and the conditions under which consumers should obtain relief from their debts.”

Georgetown McDonough faculty Jason Brennan, David Faraci, John Hasnas, Peter Jaworski, and Govind Persad were moderators and active discussants during the roundtable sessions. 

“The institute is devoted to examining the ethical implications of markets, and inasmuch as market forces can sometimes mire citizens in debts that threaten their ability to meet their families’ needs and satisfy their own ethical obligations, GISME’s mission was well realized in this day-long set of debates about the ethical demands on a nation committed to free enterprise,” said Heidi Hurd, visiting professor of ethics at Georgetown McDonough and David C. Baum Professor of Law and professor of philosophy at Illinois.