THE BANKRUPTCY BILL….The bankruptcy bill currently wending its way through Congress is a complex piece of legislation covering a complex topic. So how do nonexperts figure out whether the law is any good? Is it genuinely meant to crack down on abuse of the bankruptcy system, as its sponsors say, or is there more to it?
It’s hardly possible to become an instant expert in a field like this, but there are nonetheless a few proxies that can help us see what’s really going on, things that help us figure out the score even if we don’t understand all the details. Here are a few:
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Amendments. What amendments have been offered to the bill and then rejected? Here are the main ones, all of which were summarily dismissed by the Republican majority:
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From Russ Feingold, an amendment that would have allowed senior citizens to protect $75,000 of the value of their homes during bankruptcy proceedings.
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From Ted Kennedy, an amendment focused on helping people who are forced into bankruptcy due to major medical expenses.
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Also from Ted Kennedy, an amendment that would have protected $150,000 of the value of patients’ homes from being seized to pay creditors.
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From Daniel Akaka, an amendment to force credit card companies to disclose how long it would take a consumer to pay off his bill making minimum monthly payments, and what the interest rate would be.
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From Dick Durbin, an amendment that would have exempted veterans from the most onerous provisions of the bill and prevented creditors from recovering debts from military personnel if the loans had annual percentage rates higher than 36%.
If stopping abuse were truly your primary goal, why would you vote against amendments like these?
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Loopholes. What loopholes have been left in the bill? Answer: the bill does nothing to address the growing use of “asset protection trusts,” used by rich people to shield income from bankruptcy proceedings, or to rein in the unlimited use of the homestead exemption, which allows them to shield multimillion dollar homes from bankruptcy courts.
If abuse is the target, surely these are some of the prime abuses that would be targeted by any honest bill?
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Medical bankruptcy. It’s true that bankruptcy rates have skyrocketed in the past couple of decades. If you look solely at population growth, you’d expect the number of bankruptcies to have grown from about 300,000 in 1980 to 400,000 in 2000. In reality, the number of bankruptcies was over 1.4 million in 2001. That’s a million extra bankruptcies.
However, as Barbara O’Brien points out, there’s considerable evidence that this has been driven largely by people who faced ruin due to huge unforeseen medical expenses. In fact, if you crunch the numbers in this report, it appears that about two-thirds of the extra million bankruptcies may have been caused by medical emergencies.
The bill does nothing to address this. Since medical emergencies certainly aren’t an abuse of the system, wouldn’t any honest bill aimed at abuse pay special attention to the recent and growing epidemic of families that declare bankruptcy due to medical emergencies?
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Who’s for it? Who’s against it? Credit card companies, who have grown rich from their increasingly revolting loan shark-like tactics, don’t want to pay the price of their reliance on these obscene methods. They want the ability to engage in any kind of shady marketing they can, eagerly promoting the virtues of almost unlimited debt to people they know to be unsound risks, but when the loans don’t pay off they don’t want to suffer the consequences. Credit card companies are among the primary backers of the bankruptcy bill, which is largely designed to shield them from taking responsibility for their own loan portfolios.
Conversely, practically every consumer group in the country is against the bill.
Bottom line: you don’t need to understand all the intricacies of bankruptcy law to know what to think of this bill. Through their actions, its sponsors have made it abundantly plain that abuse of the system isn’t their real aim: protection of major campaign contributors is. The poor get shafted, the very real crisis of medical bankruptcy is ignored, the rich are allowed loopholes that let them off the hook, and credit card companies can continue on their merry way knowing they won’t have to pay the price for their own folly.
Welcome to America.
