A person or company goes into bankruptcy when its income is insufficient to service
its debt repayment obligations and there is no other way it can return to solid
financial footing. In essence, a person going bankrupt opens his or her books to
a court, says "I give up!" and is released from most debts. The bankruptcy system
allows a fresh start, hopefully with a more cautious attitude about spending and credit.
An important part of the bankruptcy bargain is that the person who entered
bankruptcy is exposed to the world as someone who has gone bankrupt. Bankruptcy
is a shameful thing, and the fact of a bankruptcy is meant to warn future creditors
and business partners that the person who has gone bankrupt has a less than stellar
financial history.
Section
107 of the bankruptcy code makes any filing in a bankruptcy
case a public record. With bankruptcy records increasingly
available online, this "exposure" function of the bankruptcy
system is susceptible to misuse. Fraudsters may take advantage
of the fact that so much information about bankrupts are available,
and may use this information to commit identity
fraud. (Some recently bankrupted people are actually good
credit risks because they can not go bankrupt again for several
years.)
For the most part, the concerns discussed as "privacy" in bankruptcy are more about
identity fraud, which is, indeed, a fraud problem. Someone who has gone bankrupt has few
claims to privacy in the traditional sense. Part of the bankruptcy bargain
is that personal financial foibles are exposed for the public to see. Indeed,
this loss of privacy is an intentional part of the bankruptcy, which is and should be
embarassing and stigmatizing.
Links:
Request for
Public Comment on Financial Privacy and Bankruptcy, Department of Justice,
Depratment of the Treausry & Office of Management and Budget (July 31, 2000)
Comments? comments@privacilla.org
(Subject: Bankruptcy)
[updated 10/31/00]