Deeper Hole for Debtors
The bankruptcy reform legislation President Clinton vetoed last year because it was unfair to consumers is being rushed through Congress again. This time, if passed, President Bush is sure to sign it into law. That would be a great victory for banks, paid for by consumers in financial trouble.
Banks and credit card companies pushing for the reform claim that current law is too lenient on those who file for bankruptcy only to avoid paying bills. There are admittedly abuses--3% of bankruptcies are filed by those with enough money to pay at least some of their creditors--but this legislation is too harsh on the genuinely distressed 97%. The House approved its version of the measure Thursday, but there is a chance it will be amended or defeated in the evenly divided Senate next week.
Credit card companies could hardly ask for a better law. They would have to take no responsibility for ever-more-aggressive lending, even to those with poor credit records. The companies know that some of that debt will go sour and they account for it in the high interest rates they charge cardholders. The bankruptcy bill deals them a few more aces, making it harder for debtors to get out from under.
Lenders, who spent millions of dollars lobbying for the legislation, argue that the current law allows too many consumers to walk away from debt. But a recent study by the independent American Bankruptcy Institute shows that in 97 out of 100 bankruptcies, the debtors, facing either catastrophic medical bills or loss of income, have hit bottom and cannot repay. Nearly 90% have no assets and owe, on average, $36,000. They are either renters or live in homes worth less than $100,000. The cars they drive are, on average, eight years old, and seven out of 10 don’t earn enough money to cover their living expenses.
The new law would close the door to many consumers filing under Chapter 7, which does not require repayment, and force them into Chapter 13, where they can lose homes and cars. Even in Chapter 7, creditors can force borrowers to repay some of their debt.
Sen. Paul Wellstone (D-Minn.) is leading the battle against the unfair legislation, and he has the support of both California senators. He will need the backing of all Senate Democrats and a Republican or two next week when he takes his fight to the Senate floor.
