An effort by right-to-life Republicans to include language that would allow hooligans who block access to abortion clinics to avoid court-ordered fines or judgments by declaring bankruptcy has so far prevented congressional action on bankruptcy “reform.” While the matter is certain to reappear when Congress reconvenes after Labor Day, the delay offers an opportunity to bring pressure on Congress to defeat the legislation.
While the “reforms” make it more difficult for working families to qualify for bankruptcy relief, the legislation, first introduced some five years ago, continues the “millionaire’s loophole” that allows affluent debtors in seven states and the District of Columbia to declare bankruptcy, wipe out most of their debts and keep homes of unlimited value. This loophole has allowed wealthy individuals, like actor Burt Reynolds, to run up debts (Reynolds had more than $10 million), declare bankruptcy and keep their opulent homes.
As presently written, the legislation will allow Enron executives who made millions while driving the company into ruin to receive vastly better treatment than the employees who have lost jobs, pensions and retirement savings as a result of the collapse. Texas-based executives with multi-million dollar homes will be able to protect these properties, while employees, who are based elsewhere, who rent or who own more modest homes, face eviction or foreclosure if they are unable to keep current on rent or mortgage payments.
The Consumer Federation says other deficiencies of the bill include a redefinition of “fraud” to mean spending $500 on credit card purchases in the three months prior to filing for bankruptcy. New notice, tax return filing obligations and new administrative burdens are expected to raise the cost of filing even a simple case by hundreds of dollars.
Yet another change prohibits a bankruptcy judge from taking into account extenuating circumstances such as being the victim of a catastrophic illness or injury, loss of a job or divorce – all situations that can generate debt that is beyond reasonable repayment. The federation says these and other changes will make it more difficult for debtors to keep their car or their home in the event of bankruptcy.
The consumer group faults the legislation for letting credit card companies off the hook for their deceptive advertising policies, saying, “Any serious effort to deal with bankruptcies must take into account the lending policies of credit card companies that have spurred an increase in consumer debt.” Last year credit card companies sent out five billion solicitations.
Sen. Paul Wellstone (D-Minn.), the Senate’s most outspoken critic of the legislation, calls it “harsh and unbalanced, adding: “It boggles the mind that at a time when Americans … are most in need of protection from financial disaster, we would eviscerate the major fiscal safety net in our society for [working families]. The push for this bill is completely divorced from reality.”
In a blistering statement issued on July 26, Wellstone said the only constituency for the legislation is credit card companies and lending agencies. “Clearly, wealth, connections and power have their own momentum in Washington,” he said.
Proponents of the measure say that gutting bankruptcy protection for working families is nothing more than an effort to curb “abusive” filings by deadbeats. But research by the American Bankruptcy Institute, certainly no friend of those forced to file for bankruptcy, found that only 3 percent of those filing for bankruptcy could have paid back more of their debts.
Opponents, which include organized labor, the civil rights community, consumers’ and women’s groups, the religious community and bankruptcy experts, including bankruptcy judges, point to the fact that nine of 10 bankruptcies are the result of medical bills, loss of job or divorce.
Since 1981, the number of women filing for bankruptcy has increased 700 percent and now accounts for 40 percent of all private and corporate bankruptcies. Many of them are custodial parents who find their incomes substantially reduced, thus forcing them to file for bankruptcy. Despite claims of “putting women and children first,” the bill puts banks in competition with women trying to collect child support from a former spouse after bankruptcy .
With a 15.1 percent increase, bankruptcy filings broke the record for any 12-month period, between March 31, 2001, and March 31, 2002, according to data released today by the Administrative Office of the U.S. Courts. The trend continued in the first quarter of this year, when new filings increased by 3.3 percent The new mark is the highest first-quarter ever, and the second highest in history.
The author can be reached at pww@pww.org
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