Eight-thirty at 32 East. Danny and I were starting our dinner and talking about bankruptcy. The Senate was about to pass legislation that would make it harder for people to declare bankruptcy and erase their debts. (The proposed law would require that anyone whose income is above the state’s median income would have to file for Chapter 13, which establishes a repayment plan, rather than Chapter 7.)

Having enjoyed a strong Tequila Something before dinner, I wasn’t surprised to find myself speaking quickly and forcibly on yet another topic on which I have no particular expertise. “They should abolish Chapter 7,” I said emphatically. “Everyone should be expected to repay his debts.” “Some people can’t afford to,” Danny said. “When you can’t pay, you can’t pay,” I nimbly retorted. “But when you can, you should.” He shrugged his shoulders and said something about a passing waitress.

The conversation followed in her direction. I couldn’t help but wonder why I had been so passionate about this point, how ready to fight with him about it. Then it hit me. One of Danny’s friends owed me $10,000. It was a 10-year-old debt, provided at a time of need. I was happy to give it and never said another thing about it. But apparently I hadn’t forgotten it. Was I subconsciously upset with Danny for introducing me to the guy?

So I broke my silence: “Hey, by the way,” I said. “Your friend Ernie never paid me that $10,000 he borrowed.” He smiled at me, like he thought I was kidding. “I mean, really.” “Ernie? $10,000? I don’t know anything about it. Did you really lend him 10 grand?” I said that I had. “Maybe he doesn’t remember it,” Danny said. We dropped the subject, but I couldn’t stop thinking about it. How can you forget a loan of $10,000? How can you feel comfortable knowing that you owe someone something?

Ernie isn’t the only person who has forgotten a loan I’ve extended. About 15 years ago, I lent Paulette and her husband $5,000. I haven’t heard a word about it since. And I see her at least once a week. Because of incidents like these, I have a rule about lending money: I won’t lend a dollar more than I’m prepared to give away. Or, to put it another way, I ask myself how much money I’d be willing to give to that person if there was a chance I’d never get it back. This technique has helped me avoid some messy situations.

I have, as I’ve indicated above, several long-term, bad-debt relationships, but none of these are big enough to warrant a fight. I forgive. But I don’t forget. Apparently some people do. A very close friend of mine declared personal bankruptcy about six years ago. Since then, he’s pulled himself up by his bootstraps, dramatically increased his income, and acquired a substantial real estate fortune. I’ve been wondering lately – now that he’s wealthy, will he repay his debt to his ex-creditors? I’m not sure if it’s even possible to repay debt after you’ve gone into Chapter 7, but it seems to me that you’d want to square it somehow.

After all, you had walked away from your obligations … and were now expecting other people to honor theirs. Acknowledging and repaying your debts – these are two very fundamental requirements of integrity. You must acknowledge your debt because it is your chance to honor your creditor. And you must repay your debt because it is your chance to honor yourself. Some Washington lobbyists are against the new legislation because they say it would be “unfair to people whose debts were caused by illness or unemployment.”

What kind of morality is that? Is an obligation only an obligation so long as it’s convenient? What does thinking like that say to the majority of the population that repays its debts regardless of sickness and/or financial hardship? A debt becomes an obligation because a debt is a promise. I lend you money. You promise to repay it. If you fail to repay it – whatever the circumstances – you have broken your promise.

The reason you requested the loan has nothing to do with your ethical obligation. Your promise creates the obligation. When you break your promise, you damage your credibility and you debase your character. That is natural economics. There is nothing laws, regulations, or lobbyists can do to change that. If you have a debt and you are finding it very difficult to repay it, go to your lender, apologize for breaking your promise, and ask him for other terms.

If you give him full access to your financial records (which you should be willing to do) and he sees that you are genuinely unable to pay him, he’ll most likely provide you with terms you can accept. If he won’t give you new terms, pay him as much as you can and don’t worry about it. Eventually, you’ll repay him every cent you owed him plus interest. When that day arrives, you’ll feel a lot better about yourself.

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