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George Mason University law professor Todd Zywicki says there's a simple reason so many people go bankrupt today. "People just don't feel as badly about filing bankruptcy as they did in the past, and as a result it's become more socially acceptable and more people have filed bankruptcy."

Zywicki says there used to be a social stigma attached to bankruptcy and he wants to bring it back.

He was a proponent of the new bankruptcy law in 2005, a law meant to put more money in the hands of creditors and crack down on deadbeats. "We don't want to live in a society with a million and a half bankruptcy filings a year and a substantial amount of bankruptcy fraud and abuse," he says.

How much abuse? No one is really sure. One reason is what some call abuse others consider using the law to one's advantage. Many judges say scam artists probably account for a fraction of bankruptcy filers, no more than 2 to 4 percent. Zywicki favors an FBI estimate of 10 percent. Whatever the actual number, Zywicki believes the new bankruptcy law is all about restoring individual responsibility.

"When we borrow money we make a promise," says Zywicki. "And I believe that we should live up to our promises to the extent we can. If we can't for reasons beyond our control then a just, charitable society lets us up and gives us a second chance. But if it's just a matter of convenience, if it's just a matter of trying to live beyond our means, then I take a very different view of that."

Harvard law professor Elizabeth Warren was a leading voice against the 2005 Act.

"I really wish that we could say that the people who are filing for bankruptcy today are doing it because they just don't care, because it's an easy, cheap way to get rid of debt," says Warren. "[But] it is deeply humiliating in America to declare yourself a loser in the great financial game."

Americans routinely carry a lot of debt. Total household debt climbed by 26 percent in the 2000s after adjusting for inflation, according to the Federal Reserve's 2004 Survey of Consumer Finances. The survey notes that a seventh of households have debt payments that eat up more than 40 percent of their income, a worrisome sign. Bankruptcies are concentrated among households in the lower half of the income spectrum, households earning under $45,000 a year. The typical person filing for bankruptcy is a blue collar worker with a high school education, according to Thomas A. Garrett and Lesli S. Ott, economists at the Federal Reserve Bank of St. Louis.


Continue to part 2