It's Time for Palau to Adopt a Bankruptcy Code

by Ben Carter

When I was in Palau in December, the Island Times was nice enough to publish this letter. 

Dear Palau,

Palau needs a bankruptcy code. I did not know that four years ago when I was working as a Public Defender for Palau, but I know it now. Too many Palauans live with crushing debt from which they will never recover. If Palau wants to provide those families any hope, it needs a bankruptcy code that offers Palauans a fresh start following financial devastation.

I have spent most of the last four years defending homeowners in Kentucky from foreclosure. That is, I have spent the last four years discussing debt and household finances with thousands of families.

While I was a Public Defender in Palau, I had the opportunity to take a few civil cases for debtors who owed either a store or another person a significant amount of money. Unfortunately, the only relief I could provide was trying to negotiate a complete repayment of those debts over the course of a number of years—often at usurious interest rates. These negotiated settlements were frustrating and unsettling to me personally because it meant that these debtors would have to struggle for years if not decades before saving for retirement, investing in their or their children’s education, starting a business.

Allowing people to file for bankruptcy wouldn’t just help individual Palauans who find themselves in over their head due to unemployment, medical setbacks, or poor financial management. Rather, there are at least five distinct benefits to providing Palauan individuals and businesses with a fresh start through bankruptcy.

  • Bankruptcy encourages economic development because it enables entrepreneurs to take risks with the understanding that if those risks don’t pay off, their lives and finances are not forever ruined.

  • Bankruptcy also encourages economic development by incentivizing investors and businesses to lend only to the most creditworthy entrepreneurs and customers.

  • A bankruptcy code would provide business partners with an orderly and predictable disposition of a failed business’s assets. This predictability reduces the cost of doing business and the cost of litigating the dissolution of the business.

  • Because the bankruptcy code provides parties with an orderly way of winding down businesses and discharging indebtedness, the court system may enjoy less litigation and fewer collections actions.

  • As I previously mentioned, Palauans deserve a fresh start. With a bankruptcy code, Palauans will know that getting laid off, encountering bad luck, or suffering through medical setbacks won’t forever plague their family’s chances at financial stability.

I hope you will not interpret this letter as the presumption of a haole thinking he knows what’s best for Palau. Having lived in Palau, I appreciate that Palauan bankruptcy will likely look very different than American bankruptcy—molded to respect tradition and the realities of life in Palau. But, I counseled plenty of hardworking Palauan families who will spend years struggling to pay back loans at unfair interest rates, struggling often with no realistic chance of ever actually catching up.

While I was in Palau, I failed to appreciate the benefits of having a bankruptcy code and failed to do anything to provide these families and individuals with the hope of a fresh start and the opportunity for financial stability. Now that I’m off-island, I look back and fear I missed an opportunity to leave a lasting impact in Palau and provide a lasting service to its people by advocating for passage of a bankruptcy code.

I am on-island over the holidays for a brief vacation and wanted to take this opportunity to urge the Palauan people to encourage their legislators to pass a bankruptcy code. To survive and thrive, Palauan families and businesses need the opportunity at a fresh start that bankruptcy promises.

I am happy to help this effort in whatever way I can from the United States. If you are interested in working on this issue, please contact me at ben [at] bencarterlaw [dot]com.


Ben Carter