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March 17, 2005

More on the Bankruptcy Bill

Rick noted below that Dave Ramsey is a harsh opponent of the recently passed bankruptcy bill. Yesterday I found this article on NRO in favor of the bill. So what gives? Do we have any bankruptcies experts in our audience? I'm all in favor of full disclosure on the part of the credit card companies and we all know that random events hurt finances. But I work in a law office and I know there are enough bankruptcies that some abuse must be taking place.

Where do we draw lines? Can our readers jump in with some expertise? I shall investigate as I can, and we appreciate any input we might recieve.

Posted by Matt at March 17, 2005 10:28 AM

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I'm far from a bankruptcy expert (I've taken two, count 'em, two classes on the topic), but I don't think this is an area in which expertise would shed too much light on the area. Rather, it seems like a pretty raw policy judgment. One thing that strikes me as odd is that, for a while now republicans (primarily) have been urging people to take on debt. Sometimes this has been tacit (post 9/11: 'consumer spending is a patriot's imperative!'), sometimes quite explicit (Greenspan, for example, has been outspoken about the desirability of sucking every drop of equity out of one's assets).

Given that, I'm more than a little uncomfortable with the GOP's support of the bill.

As for the abuse issue....I really don't think individuals are abusing chapter 7 of the b'cy code. B'cy is a pretty embarassing ordeal, and it effectively ruins one's credit for many years. No one would go through it unless s/he felt it was necessary.

Posted by: jpe at March 17, 2005 01:14 PM

I am no expert, but as a lawyer I have done a number of bankruptcies (7,11, and 13) and participated in bk litigation from both the debtor and (mostly) creditor positions.
The "reform" bill is a travesty that will most harm the middle-class by subjecting them to a new debtor's prison - a lifetime of debt payments. See, the American Bankruptcy Instiute's web-page.
As to Zywicki's article, I think he's all wet. Does he really believe that CC companies will pass on "reform" savings to the consumer? (Note: a 30% interest rate cap amendment was rejected). Next, his point that bankruptcy lawyers are influencing Congressional opposition is ridiculous. The bankruptcy lawyers I know do mostly mom and pop consumer bks and are highly unlikely to know their way around the Capitol, the real money and influence is in the big firms who represent banks and creditors and hobnob with the big boys.
The issue of personal responsibility is a red herring. The Credit Card companies entered into valid contracts with the full knowledge of the present risks of personal bankruptcy? What about their responsiblity for imprudent lending decisions? Is not Congress bailing out the credit industry for their poor decisions? It's interesting that Congress refuses to get any quid pro quo for the consumer in the form of a rate cap, or anything whatsoever, in exchange for this bail-out.
My experience: most bks are small businesses who fail, or a those with a catatrophic economic event, and the debtor puts groceries and living expenses on his credit card trying to keep the business alive or his life going. He then finds that over several years of payments that due to high interest rates, late charges and penalties, the principal debt is exponentially increased - leaving him no choice but bankruptcy on top of losing his life's dream. Without a fresh start, he will never bounce back. That used to be the purpose of bankruptcy. Just my opinion.

Posted by: Mike at March 18, 2005 02:00 PM