Going for Broke: Microentrepreneurs and bankruptcy

In “Going for Broke” (New Yorker, April 7, 2008) James Surowieki writes about how the 2005 change in bankruptcy law made it more difficult and expensive for Americans to write off their debts. Generally, I’d say that people should be encouraged to pay off their debts but, according to Surowieki, stricter bankruptcy laws may have a negative impact on self-employment.

What do these changes in bankruptcy law mean for microentrepreneurs who typically do not qualify for credit with attractive terms and often have no health insurance? How can microentrepreneurs protect themselves and their families from A) accumulating excessive debt and B) losing their businesses and other hard earned assets to predatory lenders or because of medical debt.

There are five main ways that we must protect microentrepreneurs from the risk of bankruptcy:

• Microentrepreneurs must have access to credit with fair terms.
• Microentrepreneurs should be given the opportunity to build up their financial safety nets through less restrictive eligibility requirements for IDA programs.
• Affordable heath insurance must be made available to microentrepreneurs (fifty percent of personal bankruptcies in the US are due to medical debt).
• Microentrepreneurs must be able to adequately protect their business equity from personal bankruptcy and their personal assets from their business debt.
• Interest rates and fees must be justly regulated to discourage abuse and predatory lending.