Calling the US Bankrupt is Insulting

by , April 02, 2009

An empire that spends money it does not have on a hyper-bloated military it does not need might seem to fit the description of "bankrupt."  However, calling the U.S. bankrupt is an insult to all those who actually file bankruptcy.  As a consumer bankruptcy attorney, I can personally attest to the circumstances and conditions surrounding this financial last resort, and the United States, at least in the hands of its elected representatives, does not fit the description.   

Generally speaking, there are two types of bankruptcy, liquidation and reorganization.  Before entering into either type, the bankrupt individual must come to terms with the fact that he or she can no longer sustain the failed budget that led to financial ruin.  In many cases, medical bills from our antiquated health care system are the cause.  In others, debtors rely on easy credit that snowballs into an unmanageable amount of debt that a lifetime of minimum payments could not repay.  Whether liquidating or reorganizing, a debtor who desires bankruptcy protection must provide a list of expenses, which, if considered reasonable, are offset against income to show that only limited funds are available to repay the bankrupted creditors.    

Now imagine a person filing for bankruptcy claiming that he could not repay his debts because he had the astronomical expense of maintaining at least 737 facilities overseas that provide exactly zero return on the significant investment required to sustain them.  These "bases" are filled with gas-guzzling vehicles as well as employees who, as compensation for their many sacrifices, understandably receive a lifetime of costly benefits.  This debtor could not possibly qualify for reorganization under the good faith requirements of bankruptcy until he stopped sinking funds into the overseas money pits.  He could not qualify for liquidation without turning over many of his assets for the benefit of his creditors, including the valuable foreign real estate on which he placed his bases.  In either case, for a debtor to be "bankrupt," he or she must take affirmative action and admit that there is a problem.    

In addition to the apparent American inability to rein in military spending, another factor that might discourage the U.S. from being bankrupt is the sizeable amount of non-dischargeable debt it has amassed, much of which is not even officially recognized as debt.  One of the safeguards in bankruptcy for certain classes of creditors is the designation of certain types of debt as non-dischargeable, meaning a bankruptcy has no effect on the obligation.  Some debtors are discouraged from filing bankruptcy if a substantial amount of the debt will still remain even after filing.  An important type of debt traditionally recognized as non-dischargeable is injury caused by willful or malicious conduct of the debtor.  Clearly in just the past 8 years the U.S. has incurred large amounts of this type of debt, with a war of choice in Iraq, aerial bombings in Afghanistan and Pakistan, and the torture regime from Guantanamo to Bagram and all Black Sites in between.                

A third factor that could discourage the U.S. from being bankrupt is the number of "avoidable transfers" that have taken place.  An avoidable transfer is essentially a gift or other transfer of property or cash to another party in exchange for minimal or no value in return, a gift that obviously comes at the expense of creditors.  Billions of dollars in "aid" to nations like Israel and Georgia with nothing received in return while the U.S. runs massive deficits would be "avoidable," meaning a bankruptcy trustee could undo the transfer and force the recipient to return the money or property for redistribution to all creditors, and we know our government could never live with that terrifying prospect.  

Thus far President Obama has not distinguished himself from any of his predecessors, as he has proposed increasing rather than decreasing the Bush-era military budget.  With a spineless Democratic Congress better at printing money than cutting wasteful spending and a Republican minority with no better ideas than continuing the failed policies of 2001-2008, I do not expect the United States to commit to the difficult self-analysis required to be bankrupt.  Until we have real change, we will remain an insolvent nation, not a bankrupt one.

Read more by Jay Barr