A Modern Poor Debtor's Oath
Bankruptcy offers a fresh start that frees individuals from crushing debt burdens. Many insolvent Americans are, however, simply too poor to afford bankruptcy. Filing for even the simplest type of bankruptcy costs around $1,800, with most of this money paid to attorneys who help complete more than twenty required forms and schedules. These forms verify that the debtor qualifies for relief and help divide the debtor’s estate among creditors, but for the large majority of debtors, this paperwork is unnecessary because the debtor easily qualifies for relief and has no assets to distribute. History offers a better model. Two centuries ago, the law granted release from debtor’s prison through the simple execution of a “poor debtor’s oath”—a short declaration that the debtor lacked substantial assets. For most debtors, modern bankruptcy law should require no more than an updated version of a poor debtor’s oath that provides relief unless creditors or their trustees are willing to pay some cost to challenge the oath’s validity. To discourage the wealthy from taking false oaths, Congress could sharply limit the exemptions available in the simplified procedure. Even dramatically smaller exemptions would protect all of the assets of the overwhelming majority of bankrupt debtors. By avoiding costly processes for debtors who obviously qualify for bankruptcy relief, a modern poor debtor’s oath could save hundreds of millions of dollars in transaction costs each year and greatly expand access to bankruptcy.