New Bankruptcy Standards: A Failure Or Punishment?

What Deadbeats?

The big credit card producing banks successfully lobbied congress and the Bush administration to pass new, more restrictive criteria for the average person filing for bankruptcy. The claim was that most people that filed bankruptcy were running up unsecured debt buying frivolous things and living the high life while shafting the credit card companies. Being that the congress is filled with so many pro-big business Republicans, the idea caught on and the law was passed despite the fact that, had any one of the congress critters that voted for the damn bill bothered to do their homework, there were more millions of dollars lost through big business bankruptcies and that the majority of average citizens filing bankruptcy did so as a result of some catastrophic life event. So now comes the news:

In what will undoubtedly be the first of many "I told you so" reports, the National Association of Consumer Bankruptcy Attorneys has found that, overwhelmingly, people who file for bankruptcy protection aren't deadbeats who went on shopping sprees with the intention of shirking their debts. That's quite contrary to what was being claimed by supporters of the new federal bankruptcy law that went into effect last October.

Anyone that has worked in the field of social work and homeless families could have told these folks that they were sniffing up the wrong alley. But K-Mart, Delta, GM, Ford, RCN, big steel comapnies and an entire host of other large corporations have filed bankruptcy and cleared millions away in debt (all at once, I might add), restructured debt, eliminated stock investments, downsized workforces, eliminated retiree benefits, cut pension payments, and literally screwed millions of Americans in the process... but the benfits (and I do mean benefits) of bankruptcy for big corporations remain in place... and oh, yeah, did I mention that the CEOs and other executives that ran these companies into bankruptcy or scandal walk away with their shirts still on their backs and "golden parachutes" that keep their financial status intact?

For years, those proponents argued that billions of dollars were being lost because people were simply being allowed to walk away from their debts. "As retailers, we have seen firsthand the dramatic effect bankruptcy has had on both consumers' finances and on our ability to serve the public," wrote Steve Pfister, senior vice president for government relations at the National Retail Federation, in a letter to House members as the bankruptcy bill was being debated. "These filings ultimately cost the tens of millions of households we serve hundreds of dollars each in unseen costs every year. Unfortunately, many of those losses are the result of misuse of the law by irresponsible, higher-income filers."

On the day President Bush signed the bankruptcy bill, he said: "In recent years, too many people have abused the bankruptcy laws. They've walked away from debts even when they had the ability to repay them."

The new law requires people to get credit counseling before they can file for bankruptcy protection. The premise behind this provision is that by forcing people to get counseling, it will show that many bankruptcy filers in fact have enough money left over after taking care of their essential expenses to repay creditors.

Lies... manipulation... ideological propaganda... false and misleading intelligence... bovine excrement!

I spent several years reporting on bankruptcy and I saw no evidence (academic or anecdotal) to support claims that many people were gaming the system.

Now, in the first analysis of the tens of thousands of people who have undergone credit counseling since the law passed, the bankruptcy attorneys association found that nearly all (97 percent) of the debtors truly couldn't pay their debts.

The association examined data provided by six large and small credit-counseling firms from a cross-section of the country. All of the firms have been authorized by the Justice Department's Executive Office for U.S. Trustees to provide the required pre-bankruptcy counseling. In total, the firms that were surveyed counseled 61,355 consumers.

Four out of five filers felt forced to seek bankruptcy protection because of a job loss, catastrophic medical expenses or the death of a spouse, according to the report, "Bankruptcy Reform's Impact: Where Are All the Deadbeats?"

And the fifth filer was someone living on a yacht, sipping champagne poured by a staff of servants? NOT! The truth is that most trustees and magistrates of the bankruptcy courts comb through the filing reports for discrepanices and assets of significance with a fine-toothed, razor-sharp skill for detecting any hint of indiscretion. Most people that file bankruptcy are ashamed of having to be in the position of filing, but have reached a point of no return.

And the credit card issuers are gouging, committing usury and making a profit despite the number of people that have filed bankruptcy. If they were not making enough of a profit, then they would not be in business, would not be acquired by other companies (Wachovia has eaten up a lot of smaller credit card issuers) and they could not offer 0% interest for six months marketing campaigns... and then we have the fees.

Has anyone noticed that the banks and credit card companies are fee happy? My bank requires a fee to count change. They held a check I deposited for 15 days without telling me, causing me to bounce a few checks and charged me $6.00 per day per check for the 25 days that it took them to notify me. I was able to negotiate the charges down, but not without a real fight. After checking things out, I learned that my bank makes 16% of its profit margin on fees alone. No wonder they saw fit to notify me of the problem 25 days into the situation. But my bank was one of those that sent lobbyists to congress to testify and pay for "lucrative favors" for congress critters willing to give their men in Washington access I could never get.

Something is rotten on Capitol Hill, at 1600 Pennsylvania Avenue, and in the halls at SCOTUS... and it is the average Joe or Jane that is getting screwed in the process... without a kiss afterward. I am thinking about hiring a lobbyist that will tell our leaders that unless Jim Downey gets a grant for a million dollars a year (untaxed, of course) for the next 20 years, the sky will fall, their body parts will shrivel, and business will suffer. They might not believe the part about the sky, or the part about the shrivelling, but they are so entrenched in their ideology, I might just get my grant on the lies I tell about business suffering.