Needed: Richer Debtors in Bankruptcy
Needed: Richer Debtors
The first reports on the new bankruptcy law are trickling in, and they are embarrassing those who said that bankruptcy was loaded with deadbeats. The new law requires everyone--no matter the reason for filing bankruptcy and no matter how low their incomes--must take a credit counseling session before they can file for bankruptcy. The idea was to pressure those who could repay their debts into debt management plans and away from bankruptcy.
But who is showing up for credit counseling? A new report from the Washington Post this morning says that credit counselors report that most of the people who come to them before filing for bankruptcy are in terrible financial shape, "people with true hardship, such as lost jobs or disabilities that cut their incomes." According to a credit counseling spokesman, "virtually none" qualified to pay anything. Many couldn't even afford the $20-75 counseling fee.
Could this mean that the advocates of the bankruptcy bill--the ones who asserted that the system was rife with abuse--were wrong?
No, says the industry's chief lobbyist. The Post quotes Phil Corwin who spearheaded the lobbying effort for the American Bankers Association. He says that the consumers filing now are "the poorest of the poor . . . not a fully representative sample of the filers." In other words, the industry will be vindicated as soon as all those rich debtors start trying to file for bankruptcy.
It is clear that the system hasn't yet settled down after the huge spike in filings just before the law took effect October 17, 2005. And it is entirely possible that the first filers in 2006 look different from those who weren't savvy enough to file last October. It is also possible that the new law will keep lots of people from filing. But it is worth noting that the stories these early debtors tell are the same ones that the academic researchers were finding before the new law took effect: job losses and medical problems drive the bankruptcy decision for most families.
For now, credit counseling is exactly what the opponents of the bill predicted--a device to delay and to drive up the costs of bankruptcy protection for the very poorest people. If Lobbyist Corwin thinks the "poorest of the poor" are the only ones trying to file for bankruptcy right now, then why not give them a break once they have passed the credit counseling screen--how about an exemption from all the new provisions of the bankruptcy laws?
How long will the "poorest of the poor" still have to pay the freight for the mythical rich debtors who were abusing the bankruptcy system?
Not to defend the bastards, but this seems too easy:
Isn't his argument that the industry is vindicated by this outcome, because it shows that the law means that deadbeats are no longer filing for bankruptcy?
As an old post on the Cafe might have put it, sure, this is non-falsifiable economics. But I take it that's the argument we have to work against.
January 17, 2006 4:31 PM | Reply | Permalink
Take it from the husband of a current banruptcy clerk. The credit counseling provisions in the new bankrptcy bill are gratuitous as all get out as they simply drop an added cost on filers that are about to lose their due to job loss, medical expense or plain old hand to mouth poverty. God bless America. Eat the rich.
January 17, 2006 6:58 PM | Reply | Permalink
The Bankruptcy Bill was passed by Democrats and Republicans. It was written by the credit card/banking lobby, for the credit card/banking industries. It will likely cause even more pain than Clinton's welfare to work program did, especially in light of massive budget cuts for domestic spending to finance tax cuts for the rich and the war in Iraq.
The federal minimum wage needs to be raised so that it is brought in line with its historical level (see http://www.epi.org/content.cfm/epi_cbpp_20050901). This is a winning issue for progressive candidates as public opinion is behind it. Congressmen should be pushing an increase in minimum wages, NOT their own six-figure salaries.
January 17, 2006 7:35 PM | Reply | Permalink
". . . about to lose their [houses] due to . . ."
January 17, 2006 7:49 PM | Reply | Permalink
In the end I believe we will find, as is often the case in these periodic efforts to make the average Joe into the big economic boogeyman for politicians, that this will turn out be yet another proverbial case of "fixing the intelligence around the policy".
Are there average people who abused the bankruptcy laws over the years? Why, I know of several myself who made very irresponsible personal decisions, exploited the system and came out rather well. Was it worth it to them to go through the humiliation associated with enduring this process? You would have to ask them that question as I can't answer it. But, as has been documented extensively, the overwhelming majority of filers have been those with catastrophic circumstances such as illness and job loss. Again, I have personal knowledge of a great many more of these individuals than the "deadbeats" that are so often portrayed by those with a political motive.
So the industry lobbyists can huff and puff and make their cases that the full skinny is not in on this topic. And they would be right. But in the end, when it is all said and done, and the facts do not in any way line up with all the blathering, allegations and prognostications from the high falutin' industry geniuses. And conniving politicians whose pockets are lined by the credit card companies have long since pushed their votes on the bankruptcy bill into the deepest bowels of the memory hole. Then we will look at all the information and say, "Damn, maybe this wasn't such a good idea".
But, of course, it will be well past the time of doing anything about it. The die has been cast. This bankruptcy legislation is now Standard Operating Procedure. The wealthy can continue to use and abuse the system as they see fit. The blue collar guy with the three young kids and a wife who just found out she has breast cancer is just praying he doesn't get laid off. Cause if he does, well, that's just too bad. Sorry about your luck. Maybe after his wife dies and he gets a little life insurance benefit maybe he can pay back some of that money he owes. God knows that should be his first priority.
Cause that's sure the message his country gave him.
January 17, 2006 7:52 PM | Reply | Permalink
Excuse me but I'll be posting this little item for the next few days where ever I go, it just seems to fit:
Following the murder of Pertinax on 28th March AD193 at the Palatine in Rome, and the subsequent auctioning-off of the empire by the praetorians to the highest bidder, Didius Julianus was proclaimed emperor by dint of having a larger purse than his rival bidder, Titus Flavius Sulpicianus, the father-in-law of Pertinax.
The Bank Ass. spent 100 MILLION dollars to get that bill. I hope Joe Biden is lurking out there.
January 17, 2006 11:56 PM | Reply | Permalink
Just no self-discipline - appearances are everything. These do not have my sympathy.
But when a soldier who has been deployed to Iraq loses his/her ability to pay family debts because of Iraq, or some corrporation has shipped its industry out of the country and bankruptcy must be declared, then my government is responsible for their losses.
My government talks a good game about "equal opportuinty", the "American dream", then turns around and pulls the rug out from under the "dreamers".
My government talks a good game about "free interprise", but writes tax laws that are "free innerprise" for special interests.
January 18, 2006 6:28 AM | Reply | Permalink
Apropos of the moment, those of us who maintain a balance or two on credit cards have been advised, in no uncertain terms, that we must accept a new minimum monthly-payment regimen in addition to interest rates that rise and fall capriciously based on often-less-than-accurate information gleaned from frequent checks of the Big Three credit bureaus.
I suspect this latest outrage emanating from such megabanks as Chase, Citibank, and Bank of America – who I suspect actually control the credit bureaus in any case – is directed once again at those least able to defend themselves, namely, the masses of working class Americans who need two incomes and a certain amount of credit just to survive. Never mind the grossly unwholesome practice these same institutions in writing off billions of debt to third-world countries, mainly for political reasons. Just transfer the underwriters’ wrath back to the marginally poor at home and then make sure they pay, and pay, and pay by suborning Congress and a multi-millionaire President into passing an increasingly punitive and disingenuous bankruptcy law.
The resulting debt peonage foisted off on millions of Americans with the aid of an Elmer Gantry faction bought and paid for by the banks preaching the morality of Abraham Lincoln and his putative penny will no doubt escape the attention of some of us in the suburbs. We have our mutual funds and high-equity mortgages to protect us.
Or are those instruments of security also controlled by the megabanks?
Stay tuned.
January 18, 2006 7:41 AM | Reply | Permalink
You should have the option of closing the account and paying off the balance under the old terms. At least in my case that deal was offered.
January 19, 2006 7:10 AM | Reply | Permalink
It appears that between the lower and middle income levels who have filed because of rising costs to live. And when we have a GOP ranting about how good the ecnomy is with its ZERO inflationary figures. I have to wonder if this is not just a political false economy rather than a reality of real life? It maybe that the richer maybe filing for bankrupcy sooner than they think! Look at GM and Ford who like many of the insured middle class who are cutting back to avoid filing for bankrucpy because of the rising costs for healthcare. Now we also have the new drug program which even many of the GOP agree will also cause Medicare to go broke. Problem is the more we feed big industry without also feeding the middle class and the poor of this nationin the end everyone loses! There are no free rides in this world and even the rich have to pay. As any good farmer knows if you don't take care of the salt of the earth and feed the seeds of not only progress but those who do the work of progress those big elephants won't have enough to eat to stay strong and that could turn them into mules! Hopefully not before both the mule and elephant don't die on the vines of total bankrupcy!
January 19, 2006 10:58 AM | Reply | Permalink
Assuming one prefers to keep the old card because of convenience, program benefits, rates or other advantages, there is no option other than to go out and find another equal or better setup. At best an annoyance, at worst a risk of finding nothing of the kind.
This involves coercion, plain and simple.
January 19, 2006 2:19 PM | Reply | Permalink
As a former successful entrepreneur myself, I have decided that it isn't worth taking risk anymore. Don't borrow money - the contracts are instruments of economic slavery. Don't risk losing what you have, no one will come to your aid. Save everything you have, so you can pay for your food and housing when you are sick. Forego all luxuries, they are traps that will leave you poor and homeless when you get sick. We no longer live in a free country. It has been conquered by selfishness and greed, and will eventually become ruled as a dictatorship or a socialist regime that will keep us economically oppressed, and we will not be allowed to own anything of value. Our government has become corrupted, maybe beyond repair.
My response is that there is only one hope, and that is my faith in God. I no longer fear death, because it is a door to a new life. I rejoice in the life I have today, for God has provided for me well. I am not dependent on the things He has given me, because I recognize they could be taken away any day. I am at peace, because no matter what I know God will take care of me. My priority is to love those around me, and to cease making sacrifices for a bigger paycheck. Instead, I choose to live with less money, and more love.
January 24, 2006 6:51 AM | Reply | Permalink