The Senate Judiciary Committee passed a bankruptcy bill (S.256) that makes
it harder for families in trouble to declare bankruptcy to get relief from creditors.
Congressional leaders have been trying to pass this bill since 1997, when the
credit and banking industry drafted it and spent $60 million to attempt to push
the bill through Congress. This bill benefits the credit card industry, which
pulls in $2.5 billion a month in profits largely in fees and interest charged
to consumers. The industry wants this bill to help collect on those families
overburdened by debt, and justifies it by labeling the bill as one that only
targets “deadbeats.” Senator Charles Grassley (IA) introduced the
bill and stated, “It's time to promote responsible borrowing while also
ensuring the safety net offered by bankruptcy. It was not intended to be a convenient
financial planning tool where deadbeats can get out of paying their debt scot-free
while honest Americans who play by the rules have to foot the bill.” You
would have to scour the bankruptcy rolls pretty closely to find these deadbeats,
because over half of all bankruptcies are filed after medical emergency. In
fact, nearly 90 percent of bankruptcies are filed because of illness, disability,
job loss, family death, and divorce. The new bill makes it harder for these
financially-squeezed families to find debt relief. Meanwhile the bill does nothing
to stop abusive lending practices by credit card companies.
More Red Tape: The bankruptcy bill is an attempt to steer families away from
filing Chapter 7 bankruptcy which gives filers a clean slate and instead force
them into Chapter 13, which requires continued payments to the credit card companies.
Judges already have discretion to refuse Chapter 7 in cases of abuse. The proposed
bill will require every debtor, even the poorest and even those driven to bankruptcy
by medical problems and job losses, to provide detailed calculations in the
bankruptcy schedules applying the Internal Revenue standards to the family’s
expenses. The means test requires itemizing, documenting and providing detailed
explanations to justify each “special circumstance” expense that
deviates from the Internal Revenue Service expense standards, and each adjustment
to income, as necessary and reasonable. Low and middle class families are frequently
missing much of the documentation that would be needed for this process, but
this is a no-exceptions game. Even though the paperwork may not be necessary,
anyone who fails to provide it will be dismissed from bankruptcy with no discharge.
The law also requires those seeking Chapter 7 protection to seek counseling.
This is all premised on the false belief that most filers from bankruptcy are
deadbeats. According to the American Bankruptcy Institute, a nonpartisan research
organization, only three percent of people who file under Chapter 7 might be
able to make some payments under Chapter 13—and many of those might reveal
other problems if more data were available. The end result of this new “reform”
bill is just to make debt relief tougher for those who really need it.
Congress to sick people—“PAY UP!”: Every year, 2 million
Americans are plunged into bankruptcy just because they get sick. Put another
way, half of all families filing for bankruptcy experience a major illness,
according to a new study by Harvard Medical School and Harvard Law School. Surprisingly,
most of these families seemed secure before the catastrophic illness; most filers
had been to college and had homes, decent jobs and medical insurance. Still,
all it took was one major illness to ruin them financially. Apparently, the
problem is getting worse. The same study found that medical-related bankruptcies
have risen 2200 percent—that is not a typo—since 1981. The new bankruptcy
bill only makes things worse. A concerned alliance of 1700 medical doctors sent
a letter to Congress opposing the bankruptcy bill because it "remove[s]
protection from patients financially ruined by medical costs."
The Bottom Line: Senators from both parties have proven willing to vote against
financially-squeezed working families in favor of the credit card industry’s
bottom line. These families have no PACs, no lobbyists in Washington, no muscle
on Capitol Hill. By contrast, credit card companies have given $24.8 million
to congressional and presidential candidates. No contributor gave more to the
recent presidential reelection campaign than MBNA - $240,675 through its Political
Action Committee and individual contributions. Undoubtedly it expects a return
on its investment.
and NCLC