The Debtor’s Treadmill - Easy to Get on and Now Harder to Get Off

By Ali Hassan Massoud

The first major overhaul of the nation's bankruptcy laws in 27 years and long sought by the nation's credit card companies and banks is likely to be approved by Congress this week.

A news story regarding this bill in the New York Times recently had the seemingly innocuous headline, “Bill Tightening Bankruptcy Law Nears Senate Passage.” However, in my humble opinion, if this bill passes, the consequences won’t be innocuous at all. As Paul Harvey would say, here is the rest of the story.

Public interest groups, independent analysts, and bankruptcy law experts not in the pay of MasterCard, Visa, American Express, Discover Card, and the major banks mainly agree that these “reforms” are of questionable necessity and principally help financiers.

“The critics” says the New York Times, “who include consumer groups, Democrats, and more than 100 bankruptcy law professors - say that the new law's supporters have significantly exaggerated the problem. They say the legislation will do far more damage than good by hitting middle-income families, women and the elderly who have used bankruptcy protection in growing numbers of cases to protect themselves from ruinous health care bills and other calamities. They also cite the eagerness of credit card companies and banks to extend credit that often comes with heavy and largely unseen costs for late repayments.”

The bill would make it much harder for families in distress to write off their debts and make a fresh start. Instead, many debtors would find themselves on an endless treadmill of payments.

A vast majority of personal bankruptcies in the United States are the result of severe misfortune. One recent study found that more than 50%of bankruptcies are the result of medical emergencies. The rest are overwhelmingly the result either of job loss or of divorce.

The credit card companies say these “reforms” are needed because people have been abusing the bankruptcy law, borrowing irresponsibly, and then walking away from debts. The facts say otherwise.

The bill's core provisions would impose a means test on debtors to determine whether they had enough assets to pay back at least some of their debts. Those filing for bankruptcy whose annual household income falls below the median level in their state could apply for complete debt forgiveness. Those who make above the median would have to develop a repayment plan. Even if it takes decades to pay off, and although the original debt itself is repaid many times over when late fees, interest, court costs, attorney fees, and other expenses are included.

So, if you are facing a $120,000 in debt because your kid or spouse has cancer and you make $37,000 per annum, what is the likelihood you’ll ever get clear of the bill collectors and their lawyers? Not very, unless you flee to Mexico or something.

Republicans and other bought-and-paid-for whores of the creditor class, such as Gail Heriot at National Review, have said that those saddled with crippling medical bills would be “protected” by the means test. Consumer protection advocates and their few allies in the Senate lost a bid to protect $100,000 of the value of homes owned by people facing medical hardships from being seized by bankruptcy courts to pay creditors. Mercantilist influence at it’s best, eh? Tell someone looking at a $50,000 debt for chemotherapy what great “market based reform” it is National Review?

At least debtors of ordinary means can’t be jailed in a debtor’s prison, as that “reform” would require a constitutional amendment. At least for now anyway.

Besides the bankruptcy attorneys and the creditor classes, and the rest, who really benefits from all this, and why is it being pushed so hard? “Follow the money” is always a good approach to answering that type of query.

Republican Senator Charles Grassley of Iowa is the main backer and promoter of the creditor classes in the US Senate. He is also the chairman of the finance committee and the recipient of two and half million dollars in campaign contributions from credit card companies, banking interests, and their lawyers and lobbyists.

“Finance and credit companies,” says opensecrets.org, a public interest research outfit that follows the money given to politicians, “contributed more than $7.8 million in individual and PAC contributions during the 2004 election cycle, 64 percent to Republicans. Credit card giant MBNA's employees and PAC contributed more than $1.5 million, including $354,000 to President Bush's reelection campaign. The company spent $5.2 million on federal lobbying in 2003.”

If you’re smart and aware enough to have read this article all way through, and looked for information on this issue from a credible and analytically sound website like this one, then you’re probably street-wise enough to understand the connection between the money given by the banks and the “reforms” proposed by their lackeys, eh? If not well...there is this bridge in Brooklyn* you might be interested in buying from me.
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* “The Brooklyn Bridge has also been a famous sales tool. You've heard the expression, "Have I got a bridge to sell you." It all got started right here when a grifter conned someone into believing the bridge could be sold and the legend began.” From the Brooklyn Bridge website.

"Chemical Ali" Massoud is a father, political theorist, apostate Muslim, small business owner, college graduate, crack rifle marksman, a compulsiveblogger, cat lover, shrewd investor, US Army veteran, and currently single. He lives in Michigan. To see what he means by "Anarchy," and other ideas he has click here