American households have a debt problem. The problem is not, as often claimed, that Americans recklessly take on too much debt. The problem is that US debt policies have no basis in reality. Weaving together the histories and trends of US debt policy with her own family story, Chrystin Ondersma debunks the myths that have long governed debt policy, like the belief that debt leads to prosperity or the claim that bad debt is the result of bad choices, both of which nest in the overarching myth of a free market unhindered by government interference and accessible to all.

Chrystin Ondersma is a law professor at Rutgers Law School and an internationally recognized expert in bankruptcy and household debt. Her scholarship has been featured in numerous publications, podcasts, news articles, and conferences.

Who should read Dignity Not Debt?

First, anyone who has debt and feels ashamed and alone—instead of feeling shame you can understand that it’s not your fault—that our whole system is designed to force you to rely on debt, even when it’s obvious you won’t be able to repay it.

Second, anyone teaching students on any topic relating to debt, household finance, or debt policy, household economic issues and policies in general, or issues of racial inequality. As I was writing this book, I taught the concepts to the students and learned a ton from them as well, that’s why I dedicated the book to my students.

Third, anyone who has any role whatsoever to play in household economic policymaking or household debt policymaking—and that’s really everyone who can vote.

What is the most surprising thing you found in your research for/the process of writing the book?

The degree to which Black Americans have been excluded from the opportunity to build wealth in this country. Some people encouraged me to not talk too much about race in the book, that debt is just an economic issue—but you can’t talk about fixing our debt problems without acknowledging racism. When you have even a little bit to start with, or friends or family that have at least a little bit, it’s much more likely that you can get by without having to take on too much debt, especially high-cost debt.

But Black households are much less likely to have any inherited wealth, and that’s largely because of explicit government policies that favored white households. Consider the Homestead Act, under which the government gave away more than 270 million acres—equaling 10 percent of total U.S. land—to settlers, almost all of whom were white. And of course the early FHA (Federal Housing Administration) policies which gave many white households home ownership opportunities and a foothold in the middle class—but Black neighborhoods and households were largely explicitly excluded. 

This relates directly to debt because the less wealth you have, the more likely it is you have to turn to debt to survive and establish a life of human dignity. A medical emergency or car breaking down can become ruinous when you don’t have anything to fall back on.  And to access opportunities like a college education or a home you have to take on a lot more debt than people who have a little something to start with. And of course discrimination in education, lending, healthcare, housing, and employment among other things just compounds these disparities.

Dignity Not Debt proposes a “new taxonomy for household debt.” What are the key terms and frameworks in this new taxonomy?

I came up with this taxonomy as alternative to the present (absurd) notion that if you just take on “good debt” and avoid “bad debt” you’ll be financially secure. My taxonomy has three intersecting and overlapping categories, survival debt, opportunity debt, and extractive debt.

Survival debt is debt that households incur to survive and achieve a standard of living consistent with human dignity, like medical debt, putting groceries on the credit card, unpaid utilities, or debt incurred to acquire an education sufficient to earn a living wage.  

Opportunity debt is debt that households incur to expand resources or opportunities, such as a home, car, washing machine, or debt incurred to acquire a non-tangible opportunity, such as an education, or a new experience like a vacation or a wedding. 

There’s overlap, of course—I mentioned educational debt in both categories, for example.

Extractive debt is debt that 1) primarily benefits someone other than the borrower and 2) is substantially likely to harm the borrower.   Extractive debt includes predatory, high-cost loans including payday loans or subprime credit cards or mortgages, as well as high-cost private student loans. Both survival and opportunity debt may also be extractive debt.

Along the way to the new household debt taxonomy, Dignity Not Debt offers some extremely helpful practical education and tips for everyday citizens navigating their own household debt right now. Can you tell us about charity care and medical debt relief?

I didn’t know about charity care until one of my students, Diana Cardenas, wrote a paper about it. Every non-profit hospital — 3/5ths of community hospitals — is required to provide charity care in order to get tax exempt status. The eligibility varies, from 200% of the federal poverty line to 600%. And hospitals are supposed to determine whether someone is eligible for charity care before they engage in debt collection. Diana only found out about charity care because she was trying to help her dad deal with a big medical bill from emergency treatment. Most hospitals don’t advertise charity care very well, though, so many low-income folks don’t know that they may not have to pay their hospital bills. There’s a lot of variation from state to state and even hospital to hospital, and you have to apply for it, but it’s one option.

Another option, even more important actually, is for anyone who can qualify for Medicaid in their state to use Medicaid. I was telling my students about it and several of them said they or their families didn’t consider it because they didn’t want to “take advantage of the system,” and I’m like—this isn’t taking advantage! You pay taxes and this is like, the bare minimum you should get from the government!

A big caveat to this answer—I study debt, not medical care and not tax, but in the process of writing this book I found that the policy solutions and even the practical strategies are often outside our debt policies and systems, per se. 

Do you have any advice for people struggling with debt, whether medical debt or other debt?

You don’t have to be ashamed if you can’t pay your debts.  It’s not fair that Americans have to take on debt just to make ends meet. It’s not fair that debt is the only way many of us can access things like a car to get to work and get the kids to school, or a basic college education sufficient to earn a living wage. You can file for bankruptcy—file under chapter 7, which offers which relief. Avoid chapter 13 which doesn’t work for most people. Bankruptcy is most useful if you’ve had to take on debt to get through some emergency and that emergency has passed and you can now make ends meet if you simply get rid of the debts you had to incur to survive the emergency.

If debt collectors are harassing you and you can’t pay, tell them you will not pay and to stop calling or you will report them for a violation of the Fair Debt Collection Practices Act. If you get something in the mail suing you for a debt, show up to the court proceeding and ask for proof that they own the debt and are entitled to payment—often they will not have it. And be aware that there’s a statute of limitations in every state for enforcing debt—in New York, for example, if the debt is over three years old they can’t sue you for it. But they might still attempt to collect, so be aware that you don’t have to pay it.

In the book, you argue for an economic system that prioritizes human dignity over efficiency, and you also provide helpful examples of how prioritizing human dignity can in fact be more efficient than doing otherwise. Can you share an example of that here?

Take a look at the 2008 financial crisis. I spent a while studying that mess so I am actually somewhat sympathetic to the need to save the financial system from collapse — particularly the money markets since folks started using them same as depository banks. Failure to step in could have led to a run on the banks type situation like what precipitated the Great Depression. At the same time, financial institutions should have been forced to take bigger losses so that households could preserve their homes and wealth. Banks should have been required to modify mortgages to the actual value (which, by the way, corporations and investors were free to do if they filed for bankruptcy, just not ordinary households living in their homes). And instead of making banks take that loss our policies made households bear the loss. These policy choices were not only inefficient but also interfered with households’ abilities to achieve and maintain a life of human dignity.

What can ordinary people/readers do to take action and amplify your call for a human dignity approach to debt?

Honestly just sharing experiences and information with friends and family is hugely important. So many people struggle with debt and many are so ashamed. When I start class every semester, the first thing I do is tell my students that my family went through bankruptcy. Many students then come up to me to tell me that they or their family members have either filed for bankruptcy or struggle terribly with debt, and feel a lot of shame about having debt—or having filed for bankruptcy. And they’ll tell me later how they shared with their family members what I shared with them—that it’s not their fault they needed debt to survive, that bankruptcy is a crucial lifeline and nothing to be ashamed of. And they’ll tell me about the flood of relief their family members felt hearing that. The more we talk about the reality of our debt struggles the more the urgency of putting human dignity ahead of profits becomes clear.

What is one thing you hope all readers take away from the book?

If you have debt, don’t feel ashamed, and if someone you know has debt, don’t judge them. It’s not normal, reasonable, or acceptable that a medical emergency means financial calamity and that a basic college education requires students to mortgage their futures. Even credit card debt—many Americans have to use credit cards at the grocery store because they don’t have enough to make ends meet. We desperately need a radical shift in U.S. debt policy because Americans are suffering so much. It needs to sink in that people in debt are not frivolous or foolish, they are surviving. We need policy that reflects this reality. Our leaders can’t just keep throwing credit at problems like financial distress and inequality, and then punishing people when they use that credit.