Bankruptcy Bill: Week Zero Action Items

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A month ago today, I sent the following letter to my congresscritters, all three of 'em. It was probably too late to do any good in the Senate but perhaps it will help in the House.

I am writing to encourage you to vote against any changes to the existing bankruptcy laws when the current legislation comes before the House and Senate. I firmly believe that the existing laws work well, and to change them as is presently under discussion will benefit credit card companies at the expense of individuals.

I declared personal bankruptcy in 2003. Research has shown that nine out of ten personal bankruptcies arise out of the loss of a job, a divorce or family breakup, or catastrophic medical expenses. While my case was one of the few that did not fall under those categories, I honestly do not believe that I was or am an irresponsible, "deadbeat" borrower that the credit card companies would have you believe. I did get in over my head, which is easy to do – especially if you are young, inexperienced or for other reasons buy into the lines that credit card companies spin.

Indeed, if I am such a deadbeat, why is it that I began receiving credit card offers in the mail within literally weeks after my bankruptcy was discharged? During and after my bankruptcy case, I was deluged with offers of people wanting to lend me money to buy a car or for other reasons. And today I receive, on average, one credit card offer in the mail every day.

These offers contain lots of glowing phrases about "the credit you deserve," and so forth. But they don't talk much about their interest rates – the lowest of which was 15% and most of which were 23% or more! Nor about their fees and penalties. My husband and I each received copies of an offer this week which featured a 24% interest rate, a setup fee of $69, an annual fee of $69, and more!

The one credit card I do possess today, on which I do not carry a balance from month to month, features a similar interest rate, and will charge me an additional $29 if my payment reaches them even one day after the due date on my statement.

Such predatory lending practices draw millions of Americans every year into traps. Sometimes, especially if one suffers a setback in life, the only way to escape this trap is through bankruptcy. If the laws regarding bankruptcy are changed in the way the credit card companies desire, there will be no escape. Millions of Americans will be driven into virtual slavery, to fuel the credit card companies' greed.

History has shown that part of the reason the Great Depression became so pervasive and the suffering it caused so deep, was because there was no means for individuals and small businesses to wipe out their debts and start anew through bankruptcy. It has been argued that the economy of Japan, which has been in a recession for well over a decade, continues to suffer in part because of the same reason.

To change the bankruptcy laws now would be dangerous for the economy, and would penalize millions who have fallen on hard times through no fault of their own. It would reward the credit card companies for their rapaciousness, predation and greed. That simply is not right.

For more information about the debt crisis in America, and how it illustrates structural weaknesses in the American economy, go to www.demos-usa.org/debt.

Demos is a national, non-partisan, non-profit research and advocacy organization working on issues of democracy and economic opportunity.

while I'm not saying that those who file for bankruptcy aren't responsible-I do think that we owe it to our society to remain educated on our individual financial situations and that we reinforce our culture that bankruptcy isn't a quick fix like some assume these days.

lovelife - sure. But you can do that mostly through self-interest. Bankruptcy SUCKS and it ruins large parts of your life for a long time. There's plenty of reason not to declare bankruptcy already.

Who assumes that bankruptcy is a quick fix?

Hey, I don't even think I'll ever declare bankruptcy. However that does not keep me from envisioning the spot this will put poor people in.

This country is currently being modelled after futile societies like Saudi Arabia:

-rising unemployment
-zero tolerance for crimes
-theocratic tendencies

Isn't anybody going to bother to look at our constitution? Or is this how America finally dies?

>Who assumes that bankruptcy is a quick fix?

I think that those who are taking total advantage of the system and leaving debt for us to foot the bill in the form of higher interest rates are the ones looking at bankruptcy this way.

Most people who make that argument either don't understand the industry or are repeating a talking point for different motivations. The rest of us don't "foot the bill" for bankruptcies, and they don't really lead to higher interest rates. Bankruptcies are already taken into account in the financial models of the credit card companies. The point would make sense if the credit card industry were heavily regulated, but it's not - as bankruptcies have increased, the profit margins of the credit card companies have increased even faster.

But doesn't the means test seem like a middle ground to a solution. From what I understand they take into account your salary, dependents, what you can afford, etc. Let's face it-some need more to survive than others-but some of these people running up their cc bills aren't just buying the staples-they're buying clothes and other luxury items.

It turns out the means test is actually just a very, very small part of the bill. The rest of the bill is just filled with corporate giveaways. And as for the means test, standards of living vary greatly from city to city within a state. You could be kept from filing chapter 7 when you really need to, just because you live in a city where the average income is higher than the average income for the state. (This is one of the reasons that the bill might actually end up being unconstitutional.)

>You could be kept from filing chapter 7 when you really need to, just because you live in a city where the average income is higher than the average income for the state.

See, I don't see how that's right-if you need to file for chapter 7 you still can, I think this bill just makes sure that you get a financial expert to look over what you can/cannot afford.