I recently read quite an interesting article about Dubai, I found it interesting because it focused on a different side of Dubai we never hear about, the bad side. One of the interesting stories was about a husband and wife who ran into some debt and were not able to pay it off, the husband was thrown in jail. In Dubai the concept of Bankruptcy does not exist, if you have debt and cannot pay it you simply go to jail. I was surprised to find out such harsh measures for owing debt, although I found this strange at first after some thought the idea sounded very ….interesting. This sparked a little debate between the fiancé and me.
My Side-Good Idea
I think a prison sentence for those who go bankrupt can be a good idea. I know this sounds extreme, but think about it for a second. In North America there really isn’t any punishment for those who are irresponsible with their money and loans, it will affect our credit but that’s pretty much it. Isn’t the whole reason for this major crisis over-leverage and irresponsible money management? We have hit all time high in debt-income ratio in US and Canada people just don’t seem to take debt seriously and we are reaching record bankruptcy level. I believe if there were some serious consequences, people would handle debt much more responsibly.
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Her Side- Bad Idea
She did not like the idea at all. Her argument is that, it is cruel to punish someone so severally for debt. Everyone should have an opportunity to make up for the mistake and if you put someone in jail how would they be able to work and pay off the debt? She argues that if you sentence them to jail the money they owe is lost and no good comes from it.
I can understand that it is an extreme measurement and I do not expect any government to implement it, nevertheless I think it’s an interesting thought. If one knows they will end up in jail if they go bankrupt, people will avoid debt in the first place. If they do have debt they will take it much more serious and try to keep it to a minimum. I know many who have racked up tones of debt and declared bankruptcy to avoid paying it back. I know there are certain situations where things happen that are out of your control, like getting seriously ill and not being able to work, but if proper financial planning is done then you would have insurance for the unforeseen events.
I know there is many reasons why this would not be practical such who pays for court costs? Tax payers money is wasted on court fees and jails. I thought it was an interesting idea and we had a good debate so I thought I share and see what everyone else thinks about it.
So what do YOU think? Should those declaring bankruptcy be sentence to prison?
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{ 14 comments… read them below or add one }
I agree with your fiancée, imprisonment is too extreme for debt. I also see your point in that we do not have nearly strict enough ramification for people and they can simply walk away from their debts. A policy between the two extreme will be favorable. Good article though.
Going bankrupt should definatly be punished by jail-time, It’s not fair to shareholders and corporations to have someone forgo debt incurred. Also, when the punishment of bankruptcy is lenient, more and more people will exercise that right. Hence it backfires on us because it’s harder for hard-working, honest people to now get loans as banks have to be more careful on who they lend money out to. This, of course, has a negative affect on overall economy as fewer people can borrow and lending rates go down.
To me, going bankrupt and indefinitely withholding the obligation to pay debt is nothing less than stealing.
Given that the most common reason for bankruptcy in the US is Medical costs–jail time for the victim is idiotic.
Most people who go bankrupt are not doing so out of some crazy lavish spending spree, but rather from job loss, marriage breakup or medical costs.
To heap idiotic jail time on top of an already gut wrenching situation is unconscionable.
Only those who are ignorant of the facts would propose such measures.
Terry: I am well aware of the facts of bankruptcy, I have helped many people through this. I believe one can have a debate in a democratic country without lashing out insults.
The problem with our society is that we want things that we can not afford so we get a loan and hope we will pay things off in the future. We over leverage ourselves to a point of not being able to pay bills and opt for bankruptcy.
Going through a Bankruptcy is not an easy thing, it’s a life changing event, financially as well as emotionally. I have seen family members and friends go through it.
If you have made sound financial decisions and have proper financial plan (e.g. small debt, emergency fund, insurance etc.) your risk of bankruptcy falls dramatically. The problem is that we dont mind getting a loan to buy the house and car we cant afford but we do not want to pay an extra premium to get insurance in case of a disaster.
I am saying if there was the potential of being jailed people would be much more careful with debt and take it seriously.
The right for protection from imprisonment for debt is included in the Universal Declaration of Human Rights. In fact, it is considered serious enough that it is included in the types of rights that can never be derogated (temporarily suspended) even in cases of national emergency along with arbitrary deprivation of life, torture, retroactive imprisonment and freedom of thought.
Your future spouse is SOOOO right.
KB I get your point, how about people who owe taxes? if peopel do not pay their taxes they go to jail isnt that the same thing?
No insult was intended, but the idea of jail-time for owing money was tried before and was a proven dismal failure. (currently the US has one of the highest numbers of prison populations in the world and we go and start adding bankrupts to that!)
“Those who fail to understand history are doomed to repeat it.”
Ray you claimed you have experience with bankruptcy yet you say people who owe taxes are sent to jail– nonsense! — You cannot be put in jail for owing money!
If you EVADE, cheat on your taxes you go to jail. Thank God owing tax money is not a reason to send people to jail in a first world society.
Maybe in these third world societies they do that.
You still seem to believe that the main reason for bankruptcy is thoughtless, immature people, who don’t know any better.
As I stated previously the vast majority of bankruptcy in Canada and the US stems from — number ONE — health problems and to add the possibility of jail time to a victim of Cancer or Heart attack is a world I don’t want to live in.
Yes in places like Dubai they do things like jail people for debt and behead them for adultery, stone them for falling in love with the wrong person — it’s not a world I want to live in.
I am not interested in living under the dictates of some (unelected-directorial) so called Royal families.
When my government and it’s officials screwup I want the ability to confront and challenge them not worry that the Emir’s secret police are closing in on me for speaking out.
It is seductive to admire the simple solution (hey there was no street crime in Berlin from 1935 to 1945). Two decades ago everyone admired Japanese management proficiency as so much more superior to anything we could do here in North America — that is until that house of cards collapsed and they are still trying to recover.
Everyone keeps trying to find blame for this financial mess — one day it’s the autoworker, the next a welfare recipient, the government worker and so on.
The problem stems from greed (sold as good) at the highest levels of corporate culture. He who has the most cash as CEO is the coolest.
So who would you rather see in jail the heart attack victim or the multimillionaire CEO — who operated a “Pump and Dump”?
Maybe I did not make my point very clear, the idea is that jail would be an OPTION not the first punishment. In Canada we have public health care system funded by governments (may not be the best but we get it mostly for free) which means if you get sick most of your costs are covered not all I understand, so if you would purchase enough insurance to cover your debts you would not be owing anything except medical costs, if any. But my point is not those who get sick or anything, its being responsible with debt. People loaded with debt right up to their neck if one little thing goes wrong they fall behind on payments and the cycle begins.
Get a mortgage for the maximum amount you qualify with the lowest possible down payment, get a new car loan or leased, get a loan for home renovation etc etc……….and they dont bother think of what if something goes wrong? We are reaching record levels of personal bankruptcies because people lost their jobs and did not bother to have an emergency fund or had a small one and were overloaded with debt, they get sick and family is not only in emotional stress but also financial because nobody bothered to purchase adequate insurance….
The point is that if we had some harsher POTENTIAL measures, people would think twice before accumulating huge amounts of debt and if they did they would have some protection in place. I dont want everyone who goes bankrupt to jail I actually want the opposite reduce the number of people going bankrupt by having harsher potential measures I think people would be a little more responsible.
By the way I had a conversation about this with a co-worker who is from France and he told me that people could potentially go to jail in France for going bankrupt although not very common.
OK Ray – now I have a handle on what you are saying and I still totally disagree.
If you believe the majority of bankruptcies are from people who abuse the credit system. and use it as an easy means out — you are wrong!
I recommend anyone who advocates jail time for bankrupts attend family court sometime and watch as Judges award spouses more money in child support then breadwinners earn — it’s scary ( a lot of bankruptcies have come from this along with some suicides)
And remember only these Family court Judges can bust open Segregated Funds or Life Insurance policies–no other creditor can.
Reducing bankruptcy is an admirable goal, but don’t the easy credit people bare some responsibility?
Bankers are the guys that sell that mortgage protection insurance and I have experienced, clients who suffered a death in the family and the Bank Insurance did NOT PAY!
The survivors were forced into bankruptcy – yet they had done what guys like you and I suggest– they bought life insurance, but it was no good. Jail in this case should be for the banker that sold them that junk. (this issue is so large CBC market place did an expose’ of this product)
Harsher punishment doesn’t work — if it did the USA would be crime free.
What I believe we should strive for is a system of justice not a system of laws.
Example
If an employee stole the Boss’s car and sold it to a private citizen who had no idea it was stolen. What would the police do when they found the car?
They would take it from the private citizen who bought it and return it to the Boss. With no compensation to the private citizen (buyer beware) Right?
So what is the difference if an employee steals the Boss’s money and loses it at the Casino? (Actual case before the courts right now).
Shouldn’t the police go to the Casino and recover the stolen goods and return them to the boss. Well yeah accept the Casino is owned by the government. So that doesn’t happen.
What we all must ponder is what we want and expect of government, what we want from our society.
More regulation, harsher punishment, (more bumbling government bureaucrats making more of us stand in line for the latest government enhancement to our lives), is not the answer simple enforcement of our current laws is quite sufficient.
We all have to ask our selves “What is the purpose of government?” Some believe to redistribute wealth — some believe to tell us what to do.
Maybe I am wrong but I believe the purpose of my government is to protect my rights and freedoms regardless of where I am in the world.
PS France is a lot closer to bankruptcy then it’s are citizens.
Bankruptcy is a tool used in a capitalist democratic society to allow the individual a chance at a fresh start. Add jail time to bankruptcy and you complete and totally defeat it intended purpose.
What good would that do?
Yes I absolutely agree that banks and lenders have their own issues with easy credit and most of them are paying a hefty prize now because of that. I have always been against zero down programs and have spoken out about it.
And I strongly believe they should take stricter measures when lending, however it was only a few months ago when consumers were complaining about banks being too strict with lending and governments were asking banks to lend more money, so there is a fine line between easy credit and strict lending slowing down economic growth.
As for your insurance point yes bank policies are worthless, I have been on this issues for years now. I also have a guest post on Canadian Capitalist pointing out the issue with bank policies and and issues with post-claim underwriting. http://www.canadiancapitalist.com/mortgage-insurance-versus-life-insurance/ I have in the past also worked with Advocis to stop post claim underwriting.
However there are very rare cases of insurance policies being denied (except disability) life and CI policies are paid out almost 100% of the time, so “insurance company wont pay so why bother” cnt really be an excuse for not purchasing adequate insurance.
Jail may not be the right thing, but consumer really need to start thinking about their debt loads. We are reaching record levels in household debt mainly due to consumers being irresponsible with their finances and debts.
France has consistently been ranked as one of the worlds healthiest and strongest economies.
Now you are making complete sense, Ray and Insurance companies DO pay out on claim, it’s that JUNK sold as Mortgage protection (by the financial Institutions) that has left people (I have worked with cheated out of their death benefits).
People should always purchase (underwritten at time of application) insurance from quality insurance companies and licensed Insurance brokers only.
Quality insurance is the very foundation if any financial plan–without it any financial scheme put together is a house of cards destined to fall.
Changing the consumers view of debt and debt issues is part of our job and obviously you are working hard in that respect.
“Financial Intelligence” should be taught to kids in high school: How credit cards work, how mortgages work, the true cost of debt etc.
Knowledge needs to be brought to the consumer not jail time.
On my web site http://www.blue-collar-financial-planning.com a have a page dedicated to debt management — elimination.
If folks can eliminate debt and control undue taxation they can live a wonderful life style.
France may rank well, but Canada is NUMBER ONE!.
PS Ray I haven’t mentioned in the past, but you do have a terrific website with a lot of great valuable content.
Very nice arguing with you:)
In a capitalist system bankruptcy protection is incredibly important to driving the economy. Most new money is created through bank loans because the average person in any country doesn’t have the capital to go through with an investment in a house, a car, a business, etc. The thing is that like any business venture, there should be risk to banks, why should they be allowed to conduct business with no risk!
Like any business venture they should adequately research it, and if they lose out they lose out. Bankruptcy like a country’s economy fluctuates because of greed and the idea that profits must always increase. The alarming thing is that we see DTI (debt to income) growth blowing extremely out of hand, and it’s definitely equally the consumer’s fault as it is the banks and businesses.
The greatest protection from bankruptcy is having banks going back to their in-depth loan policies prior to subprime loans, and creating some form of socialized health care in America (as it is, we create a disproportionate amount of wealth to health industries compared to the rest of the world, causing prices to be high, which affects the whole world pricing). The problem with services or goods that one needs to survive, should always be guarded by one’s government because hey they are there to protect you from foreign and domestic threats. Unaffordable prices are a threat, and healthcare reform would definitely aid these issues we are dealing with today.
Guy… I think it’s bananas!! no!! punishment is to cruel… take time and pay it off just like you asked for it then pay for it!!
Going to jail for debt is wrong, debt is a game of worthless paper, so just play by the rules.