August 21, 2002
Bankruptcy Reform Hurts Average Folks
House
and Senate conferences have agreed to compromise language on the abortion
clinic violence amendment, clearing the way for approval of the long proposed
new bankruptcy bill.President Bush has repeatedly indicated his willingness to sign any bill, making it more difficult for the neediest families to file, while at the same time doing nothing to prevent the likes of Enron and WorldCom from using these same bankruptcy laws for their own benefit.
The proposed changes to the current bankruptcy law make it much more difficult for those in need to get the fresh start they rightly deserve, and do nothing to address the underlying financial and personal reasons most individuals find themselves in when facing the difficult decision to file bankruptcy.
Nine out of 10 Americans file bankruptcy for one of three reasons; loss of job, uninsured medical debt, or divorce. Women represent the single largest group who file for bankruptcy, with households headed by women accounting for about 40 percent of all bankruptcy.
Last year, more than 1.45 million individuals files for bankruptcy. Many are suffering from the effects of job layoffs and other post-September 11th economic consequences. As a result of these job losses, the number of Americans without health insurance increased by 2.2 million last year, the largest single increase in nine years. Approximately 82,000 Americans over age 65 filed for bankruptcy in 2001, a 244 percent increase since 1991.
The financial industry is the largest industrial contributor of all industries to Congress. US Senator Joseph R. Biden of Delaware, the strongest Democratic proponent of this proposed bankruptcy reform legislation, received almost $85,000 from credit card company MBNA Corporation in 1999-2000, his largest single campaign contributor.
Another legislative reform proponent, US Representative James P. Moran, Jr., D-Va., found himself struggling to pay almost $700,000 in debt. After one bank rejected his application for a loan, credit card lender MBNA Corporation gave Moran a $447,500 home refinance package that consolidated much of his debt at a lower interest rate with terms and conditions that allowed him to borrow more money at a lower cost than was standard for the industry. All this occurred as Moran was supporting the bankruptcy reform legislation endorsed by MBNA and other in the credit card industry.
This proposed legislation does nothing to prevent wealthy debtors from keeping their multimillion-dollar estates by failing to set a cap on the value of a home that can be kept after bankruptcy.
As a result, bankruptcies like that of actor Burt Reynolds will continue to occur. Reynolds was allowed to keep a $2.5 million home after declaring bankruptcy with $100 million of debt.
This new bill would make it much harder for a working family to declare Chapter 7 bankruptcy, and would not allow a bankruptcy judge to take into account whether a debtor is blameless for his or her financial problems when declaring Chapter 7 bankruptcy. One new prevision could allow landlords to evict tenants who have declared bankruptcy, even if the tenant is caught up on back rent and making current payments.
Executives, such as those from Enron, facing bankruptcy as a result of business debt would not be subject to the high means test that would apply to employees who have primary consumer debt.
No one shares more responsibility for the dramatic increase in consumer debt over the last decade than the credit card industry. Credit card companies sent out 5 billion solicitations in 2001. In a last-ditch effort to increase their bottom line, credit card companies have increasingly extended credit to marginal, risky borrowers such as college students who have no independent income, or the elderly and disabled on fixed incomes.
Proposals to stop predatory second mortgage lending, to prohibit solicitations to college students or to require credit card companies to provide consumers with a notice on their billing statement with information about the cost and length of time it would take to pay off balances at minimum payment rates have been virtually eliminated from the proposed reform legislation.
Unless and until true, honest bankruptcy reform is proposed, we will continue to have the best government that banking and credit card industry money can buy.
Audrey B. Blondin practices in Torrington
and recently was appointed the Connecticut chairwoman of the
National Association of Consumer Bankruptcy Attorneys.
Readers may write her at 379 Prospect St., Torrington 06790. Her e-mail address is audbl@aol.com..