"Reform's" Bitter Aftertaste

The word "reform" is used quite often these days. However, it has practically lost all connection to its original meaning depending on who is using it.

For instance, trying to understand the positive sounding "Bankruptcy Reform Bill" would be incomplete without keeping in mind the Administration's mantra of an "ownership society". The ownership society is framed as an overall goal and a "good thing". It would stand to reason then that Bankruptcy Reform would be a constructive part of that broader picture.

It is not.

James Flanagan of the L.A. Times, in an article dated April 10, offers a good explanation of how the concepts of "Bankruptcy Reform" and "ownership society" are at odds with each other. Mr. Flanagan states, "under current law it is possible for an entrepreneur to take a chance and fail, then have the debts discharged and move on to a fresh start with new financing. But under this bill, an entrepreneur who fails would have those debts hanging over him or her for years, limiting opportunities to raise new capital. And wages could be garnished at any job the entrepreneur might take".

He also points out that, "the problem for small companies is that 20% — or 320,000 — of those individual bankruptcies are actually small, unincorporated companies, financed by credit cards, home equity loans and borrowings from friends. The reality of small business, as White points out, is that an unincorporated company's debts are personal liabilities of the firm's owner".

Some people urge incorporation when starting a small business, but more often than not, that is a pointless exercise because most banks or other lending institutions will require that those incorporating personally co-sign for any loans incurred by the corporation.

There are some that postulate that, incorporated or not, a capable businessperson simply won't face a bankruptcy problem. But the quote contained in the article from Lloyd Chapman, a veteran Silicon Valley entrepreneur and founder of the American Small Business League puts a damper on the I.Q. factor. Mr. Chapman states, "90% of all new companies fail within 48 months".

Mr. Flanagan goes on to point out that both Henry Ford and Ray Kroc walked through the bankruptcy doors before becoming as business-smart as some of the "reform's" proponents would have them be and building the Ford Motor Company and McDonald's, respectively.

However, he leaves the most delicious irony for last. After explaining the long term chilling effect this bill will have in exchange for the short term profit margin of an exclusive group of campaign contributors, Mr Flanagan observes, "The great danger in this bankruptcy bill is that it would change American risk-taking culture to something closer to the European model, where entrepreneurs are suspect and a single business failure pretty much rules out any second chances".



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