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Congress agrees, citizens shouldn't have the same right to bankruptcy protection as corporations.
July 26, 2002 8:39 AM   Subscribe

Congress agrees, citizens shouldn't have the same right to bankruptcy protection as corporations. The Senate and House, after much lobbying by credit card companies, have decided that consumers don't need protection. Corporations can still file for bankruptcy, leaving stockholders and employees standing in the rain, but Joe Consumer had better not get sick, lose his job, or not pay that usurious 25% interest rate. This is the same bill that Clinton vetoed as being unfair to consumers...but we all know where this regime's loyalties lie...and it ain't the people.
posted by dejah420 (34 comments total)

 
regime......very fitting. Well you never know 25 years from now dubya might be back in the bosom of his family, getting his socks washed by ma.
posted by johnnyboy at 8:50 AM on July 26, 2002


I can understand some reasons for this legislation, though it looks pretty toadying of Congress to be looking after the interests of the banking industry at a time like this. It would also help to see some examples of abuse rather than vague references to "potential" abuse.

At least Ken Lay's still got his penthouse, though. Wouldn't want to be unfair, now would we?
posted by Ty Webb at 9:02 AM on July 26, 2002


Are those echoes of Gore I hear? "I'm for the people, he's for the powerful!" Yup, I believe there's an "I told you so" coming on...

Two kinds of people voted for the Bush regime...the very wealthy and powerful (the Extreme Court and the CEOs comes to mind) and the minions of Rush Limbaugh.

"A black man voting Publican is like a chicken voting for Colonel Sanders." - JC Watts father

Of course, to be fair, there are corporate whores on the other side of the aisle too, just not as many and not as brazen.
posted by nofundy at 9:04 AM on July 26, 2002


"This is a victory for women," Schumer said. "The agreement we've reached today ensures that those who use violence to close clinics can't use bankruptcy as a shield to escape liability."

Christ. I'm getting dizzy.
posted by Fenriss at 9:10 AM on July 26, 2002


dejah420, your thread is extremely misleading. Let me demonstrate:

The compromise would require homeownership for at least 40 months before an unlimited exemption could be used in a bankruptcy filing. People who have owned homes for less than 40 months would be allowed to shield $125,000 of equity.

People convicted of certain felonies or securities fraud in the 10 years before filing for bankruptcy could not claim the unlimited exemption under a provision inserted after the collapse of Enron Corp. and other corporate scandals
.


Under this bill it is harder for CEOs and other top officials at corporations to hide assets.

This is the same bill that Clinton vetoed as being unfair to consumers

Not really true, the bill that Clinton vetoed did not include many of the provisions of this piece of legislation. This legislation cuts back on a lot of the exemptions that corporations (which are just groups of people) and CEOs once had. Making it significantly different from bill the Clinton vetoed.

regime......very fitting. Well you never know 25 years from now dubya might be back in the bosom of his family, getting his socks washed by ma.

Again, this is a fairly inaccurate statement. 1) The bill was passed by the Senate and House and has yet to reach Bush's desk. Further the Senate has a majority of Democrats, thus, admonishing the Republicans for the Senate version is unfair. 2) It seems the Texas exemption that I think johnnyboy is referring to is going to be wiped out.

It is true that corps. and CEOs have more protection, but this bill may be a step in the right direction
posted by Bag Man at 9:18 AM on July 26, 2002


The changes to the law also include mandatory CREDIT EDUCATION to help prevent the client from making the same mistakes that "forced" them to file bankruptcy in the first place. I believe there is also a six month waiting period.

Working in the credit industry (on the consumer side) I get frequent updates about the legislation. It's my understanding that there are exceptions made to those that file for medical reasons. The idea of the law is (hopefully) to prevent people from running up tens of thousands in unsecured debt and then discharging it, only to start the process again in six months.

Maybe I am too cynical about it. Yes, credit cards to aggressively market to consumers who might have a tendency to overspend without realising the full implications of what they are doing (college students, the poor). I see it as a call for more consumer education, ESPECIALLY in high school. But again, I am probably too close to the subject to have an objective view.
posted by Andrea at 9:24 AM on July 26, 2002


"This is a victory for women," Schumer said. "The agreement we've reached today ensures that those who use violence to close clinics can't use bankruptcy as a shield to escape liability."

Wow, tha's a pretty bizzare statement. I'm certan that more women are going to be fucked over by this then violent anti-abortionists.
posted by delmoi at 9:26 AM on July 26, 2002


This sounds a lot like a favor to Citibank, among others. What I wonder now, will Citibank and other credit card companies be more responsible in their marketing? Would credit education be necessary if these messages weren't thrown around so willy nilly?

Some googling got me the following information:

- credit card companies have been pummelling the public with ads pandering to a fantasy where you can have anything you want ("the feeling of spending the day with your son at the ballpark? Priceless. -- actually, no, the tickets were $50 each, and you'll have work some overtime to pay for them, so you won't be able to tuck little jimmy into bed a few nights in exchange for that baseball game -- also see any ads done by Citibank).

- As a result, consumer credit has been on the rise.

- When people spend too much or get way in over their heads, they sometimes declare bankruptcy, trashing their personal credit in order to get some relief.

- Chapter 7 bankruptcy and Chapter 13 differ significantly. One (7) requires you sell everything you've got immediately in order to pay back the debt and ruins your credit immediately, but cleans the slate and probably nets much less money for creditors. This one is on the way out, while the other (13) forces some repayment but still does damage to your credit (less damage?).

- the credit card companies just got basically a guarantee that more consumer debt will be paid off.

It's a touchy subject, so I'm not going to completely defend people with credit problems, they're brought on by themselves under their own free will (though, the constant pummelling of messages and the way companies prey on college kids and in big cities is somewhat questionable). With the amount of consumer credit out there and its rise over the past few years, we knew it was going to eventually manifest in increased bankruptcy. This change makes it harder to get out of credit, and ensures credit comapanies can get money back, but it does introduce a sort of servitude to credit companies. If you screw up, you'll spend the rest of your life paying for it, and there is no longer any instant relief from that.
posted by mathowie at 9:32 AM on July 26, 2002


The idea of the law is (hopefully) to prevent people from running up tens of thousands in unsecured debt and then discharging it, only to start the process again in six months.

If this happens, it means that some businesses are giving unsecured credit to people with bankruptcies on their records. If this is the case, the phrase "Deserves To Lose" comes to mind.
posted by eriko at 9:37 AM on July 26, 2002


Why do six states have an unlimited homestead exemption? If something major like this happens, I would hope it applies to every citizen equally, regardless of what state they live in.
posted by mathowie at 9:38 AM on July 26, 2002


Wow, tha's a pretty bizzare statement. I'm certan that more women are going to be fucked over by this then violent anti-abortionists.

Except Schumer (who will no doubt be happy to know he's an official minion of the President) wasn't referring to bill, merely the agreement he and Rep. Hyde came to over a specific element of the bill.

After months of negotiating, passing the legislation boiled down to a disagreement between Sen. Charles E. Schumer (D-N.Y.) and Rep. Henry J. Hyde (R-Ill.) over how to word a provision to prevent people from using bankruptcy laws to shield themselves from fines imposed for knowingly violating the law while protesting at abortion clinics.
posted by apostasy at 9:38 AM on July 26, 2002


The idea of the law is (hopefully) to prevent people from running up tens of thousands in unsecured debt and then discharging it, only to start the process again in six months.

If someone declares bankruptcy, why would any credit company ever do business with them again? If this is really a problem, it seems that further screening by credit companies is the answer, not a change in law.
posted by mathowie at 9:41 AM on July 26, 2002


Consumers will still be able to file for bankruptcy, but it will just take a bit more work to do it. I (personally) don't feel that a consumer should be able to walk into a lawyer's office with 40k in credit card/unsecured debt and walk out with a clean slate and poor credit for the next 7-10 years. ESPECIALLY when they don't understand what a poor credit rating will do to them.

Almost all insurance companies pull credit reports to base rates (some rely on credit scoring more heavily than claims reports), deposits for utilities are required, landlords can refuse to rent to those with poor credit histories, your credit score may be a factor in whether or not you are hired at a new job, etc etc. The main problem is not going to be getting consumer credit, you may receive offers within weeks of filing.

I can't argue against consumer education. People need to learn that what you see on television isn't real. If you don't understand that you will have to pay for your baseball tickets plus interest (per mathowie's example) then you have no business with a credit card. Credit cards are not free money, which is a concept many consumers have a hard time understanding.

It's easy to blame credit card companies (who do bear some fault, granted) but Citibank didn't take you to the mall and force you to buy a new summer wardrobe or put your family holiday to Disney on your credit card with 17.99% interest rate. That was your choice. Why shouldn't they expect to get their money back?
posted by Andrea at 9:47 AM on July 26, 2002


To whomever said corporations are not just groups of people - this statement is a bit misleading. First of all, corporations live forever. Their sole purpose is to make a profit and to shield the "natural persons" who run them from liability.

I'm not saying they are necessarily some big bad evil, but they are very different from groups of people.

People with credit card debt did bring it on themselves, but the reasons that rich people have credit card debt are VERY different from the reasons poor people have credit card debt. For example, rich people have medical coverage or can pay cash for better medical services. Poor people don't have this luxury so they are more likely to get into debt when there is a medical emergency. (I'm not saying poor people are less responsible for their debt, but I am saying that to characterize poor people as just not knowing how to handle money is way too simplistic.)
posted by birgitte at 9:50 AM on July 26, 2002


mathowie, eriko: there is a term called "predatory lending". It involves (in part) extending credit to those having recently filed bankruptcy and a history of slow/no-pays. Most of this credit is charged at rates that make 23.99% seem reasonable. Seriously, call a payday loan place and try to get a straight answer about the interest rate.

There is legislation being written/considered in several states to help with THAT problem. It's very unseemly. I view credit education as a way for the consumer to protect themselves from that kind of thing.
posted by Andrea at 9:52 AM on July 26, 2002


When a corporation goes into bankruptcy, its shareholders are (as a rule) completely wiped out (this is why Worldcom and Enron now trade at pennies) and the fat non-qualified benefit and other plans of the old top execs are wiped out, along with their jobs. The corporation continues, but the people who caused the bankruptcy usually take nothing out of it.

Typically when an individual who has run up unsecured debt goes Chapter 7, they usually keep EVERYTHING! In the unusual case where a Chapter 7 debtor has significant home equity or car equity that's not true, but the typical Chapter 7 filer has too little home or car equity to be worth foreclosing by the unsecured debtors, and personal property which costs more to sell than it is worth plus the value of their net salary.

As long as you keep on making your mortgage and car payments, you keep your house and car and don't have to move, you keep all your stuff, you keep 100% of your takehome salary, and you get to stop making credit card payments. Is your credit damaged? For 99% of Chapter 7 filers, they were already 90 days delinquent on several accounts, so there credit was already ruined.

In other words -- NO LOSS whatever. Chapter 7 is simply a public-policy based transfer payment, with the debtor getting the gift and the public paying for it in increased interest rates and fees on their own credit. And the people who have to pay MOST among the public are not your typical Republican, but, in fact, people with limited credit history, limited educations, not so good jobs, etc., who, despite having no history of defaults or serious delinquencies, are forced into 18%-25% credit products...

A few Chapter 7 filers are truly innocent, a larger group are driven into bankruptcy by medical costs that they should have insured against (but the cost of that insurance is definitely a factor that partially exonerates them), but the large majority simply bought things they couldn't afford, knowingly and for a long time, with little reflection as to the consequences.
posted by MattD at 9:58 AM on July 26, 2002


I agree with both mathowie and Andrea here. In general, the problem with giving a "free ride", however compassionate the grounds, is that the overall cost of credit goes up -- for everyone else. The credit companies deserve opprobrium for fraudulent come-ons and hidden charges, but they weren't the ones who bought the stuff at 20% interest (or even usurious effective rates, when all charges are considered, sometimes exceeding 50%). Credit is a nice thing to have -- but when it's used, it becomes debt, which isn't. The only debt that's good to have -- almost ever -- is a mortgage, because of the built equity. Otherwise, you're just paying a high price for convenience; or worse, a higher price for procrastination.

Despite a lot of concern over the years that Americans haven't been saving enough, not much has been done. During the boom there was a lot of talk about 401(k) equity and the like, but much of that has been ratcheted back. (Note: I believe it will return, for those who have invested wisely and didn't have money in the market that they'd need in 3-5 years, like the standard advice goes.) This has taken on added importance; all of a sudden American's accumulated debt vs. accumulated equity did a big see-saw.

Tighter rules will force people to think more clearly about what risks they're assuming.
posted by dhartung at 10:03 AM on July 26, 2002


I wrote some news stories about these bills some time ago, and I think it's a bad idea to enact these changes right now, while the economy is recovering from a recession. Rich people with good bankruptcy attorneys will still be able to skate away from their debts, just as Cullen Davis and O.J. Simpson hired good lawyers to get them out of their legal messes.

One troubling part of the bankruptcy reform bills has to do with car loans. Let's say you bought a $15,000 car two years ago at 10 percent interest and you made payments for 18 months before getting into financial trouble. At this point, you owe $11,255 on the car, plus six months of back interest totalling about $500. You owe the lender $11,750 for the car, but it's probably worth about $8,000. Under the current bankruptcy law, if you filed Chapter 7 you would owe the lender how much the car is worth now -- $8,000. Under bankruptcy reform, you owe the full $11,750.

If you're a lender, this sounds fair. Maybe it is. But I'm not sure it's sound policy to force more bankrupt people to give up their cars. Most people drive to work. Rural dwellers, who proportionally have been filing bankruptcy more often that urban dwellers in the last few years, don't have public transportation available. The same goes for many suburbanites.

We didn't have a vigorous public debate on the issue of whether it's wise to take cars away from bankrupt workers. I don't think it's wise, and I acknowledge that people who disagree with me have valid arguments. It's too bad the issue wasn't discussed at length. Instead, the debate centered on abortion protesters and rich people in Florida and Texas.

The bankruptcy legislation requires debtors to undergo financial education. Over the past few years, some bankruptcy courts have required financial courses for bankrupt debtors. Research has been inconclusive on whether debtor education works.
posted by Holden at 10:12 AM on July 26, 2002


So are we supposed to stop buying for freedom now? Isn't the economy supposed to go completely over the cliff when consumers pull back on consuming? This should be interesting.
posted by hackly_fracture at 10:14 AM on July 26, 2002


The problem is that the consumer is lost in all of this. Consumer education is good, and certainly there are people who get under bills they can't handle out of sheer irresponsibility. But a lot, if not most, of the people I know who have large credit card debts have such debts because of medical expenses, unexpected job loss, emergencies, and that kind of thing. These are the people punished to ensure the gold lining in the pockets of MBNA executives. To my mind, the ease at which credit cards can be obtained is and the usurious interest rates on many of them is, essentially, a hidden tax on the lower and middle class, just like the lottery.

The real issue for me with this bill is 1) the motivation behind it and 2) that it is being pushed through by a corrupt bunch of rich, white yahoos and 3) will be approved by the monkey president. The driving force behind this is certainly not consumer education, consumer rights, or the Democratic party. But they know they have to choose their battles.
posted by fncll at 10:33 AM on July 26, 2002


To be upfront: Credit When Credit is Due is the course that I administer at work. I am only posting this to show that there is a correlation between education and behavior.

"Consumers can significantly improve their ability to manage financial matters if they attend and complete the Credit When Credit Is Due credit education program. The statistics are absolutely clear. This is especially good news since effective, comprehensive, and measurable results from Consumer Credit Counseling education programs make creditors cooperative partners and enthusiastic supporters of their endeavors. Consumer Credit Counseling Service of the Black Hills definitely understands its mission and has demonstrated performance to prove it."
รข?? Bob Runke, Sr. VP, TransUnion, Chicago, Illinois (FYI TransUnion is one of the three major credit bureaus)

This is a direct link to the pdf of the executive summary (96k) of the study recently completed on CWCID.

More info at creditwhencreditisdue.com, a link to the complete results of the study is located under partner news.

More info on bankruptcy legislation can be found at abiworld.
posted by Andrea at 10:35 AM on July 26, 2002


matt said:

Why do six states have an unlimited homestead exemption? If something major like this happens, I would hope it applies to every citizen equally, regardless of what state they live in.

It has to do with the amount of unattractive land a state has...the two that were mentioned, Texas and Florida, have that...one is desert and scrub, while the other is swamp. There are crazy weird laws regarding the price you can get land for under "homestead" deals, and the price you pay in taxes...suffice it to say, it's really cheap to get land as a homestead, but you either have to buy a lot or it'll be in the middle of nowhere...sometimes both.

So it's reasonable to say that for the same reasons that you can buy cheap land in the first place, you can avoid having it taken from you during bankruptcy.

The theory is that rich people will buy and develop the land, instead of it lying there going to waste. I believe the same sorts of laws and tax exemptions were used during the railroad expansion years, and yes, just like back then, it's mostly used corruptly:

There are a lot of ranches in Florida that are no more than tax havens, because if you own a lot of land, it gets priced full price when it's appraised ..... but if you keep a certain number of cattle on it, it's taxed as a homestead. IE a really cheap realty investment, which are the best investments because they're usually very expensive.
posted by taumeson at 10:39 AM on July 26, 2002


One of the great things about America, traditionally, is that it was possible to wipe the slate clean and start all over again--reinvent yourself from scratch. Relatively liberal bankruptcy laws were a big part of that.
This revision of the laws pretty much wipes all of that out. Another illustration that, the more corporations are legally given the status of persons, the less actual people can rely upon the protections of such a status.
posted by Rebis at 11:14 AM on July 26, 2002


while the other (13) forces some repayment but still does damage to your credit (less damage?)

It will do no less damage to your credit. It takes 3 years at the minimum to get a bankruptcy off your credit report, so you're not getting a house, car, boat, 60" flat-panel HDTV, etc.
posted by schlaager at 11:27 AM on July 26, 2002


This has got to be potentially disasterous for the common consumer. Especially, now that the economy is so volitile, there are millions of jobs at present, that aren't really all that safe. If massive layoffs do occur sometime in the future, what are the unemployed and in debt to do? I guess congress figures, "Let the dead worry about the dead." So much for the America my grandparents thought so highly of.

Ideally, if our congress people were in office to address the needs of it's constituency, we would find them today championing more and better consumer protections from predatory corporations. But alas, we born with plastic sporks in our mouths, didn't contribute financially to the corporate mercenaries who dictate our fate. They have demonstrated yet again, that they owe us nothing and they are not working for us.
posted by crasspastor at 11:47 AM on July 26, 2002


mathowie, eriko: there is a term called "predatory lending". It involves (in part) extending credit to those having recently filed bankruptcy and a history of slow/no-pays.

As an aside, the head of Bush's corporate-crime task force served as a director of a credit card company which was forced to remiburse $300 million to customers it defrauded. He was essentially a white collar loan shark.
posted by euphorb at 11:53 AM on July 26, 2002


Actually it takes a minimum of seven years for the bankruptcy to leave your credit report, however after three most years without any problems most lenders will extend credit to you (and not at 27% interest).

It's also important to note that it's not just those with poor credit who get charged higher rates. My cousin recently got a mortgage at 7% higher than the preferred rate because she didn't have enough credit. She was 23 without ever having a credit card or checking account because she didn't want to mess up her credit. Her credit union advised her to take the higher rate offered through an outside mortgage company and apply for refinancing in a year.

I guess I don't see the ability to get an instant "clean slate" as a necessarily good thing. People need to realise that their actions have consequences and if you spend more money than you earn you will have to do without while paying it back.

And again, I believe that there are provisions in the legislation to account for people who file for medical reasons.
posted by Andrea at 12:04 PM on July 26, 2002


I have a relative that knew he was going to declare bankruptcy soon because of mounting CC debt (in the mid 90's), so what did he do? He got as many cards as he could get his hands on and brought a lot of stuff... and then declared bankruptcy. I hope this law now prevents that from happening.
posted by internal at 12:50 PM on July 26, 2002


Here it is, if you want to see it for yourself.
posted by MrMoonPie at 1:14 PM on July 26, 2002


MattD: A few Chapter 7 filers are truly innocent, a larger group are driven into bankruptcy by medical costs that they should have insured against (but the cost of that insurance is definitely a factor that partially exonerates them), but the large majority simply bought things they couldn't afford, knowingly and for a long time, with little reflection as to the consequences.

I understand your reasoning, and so does Congress, but I can also see through it.

As irresponsible as it is for people to buy things they can't afford, there is more than one party to every financial transaction. I wouldn't legislate against McDonalds for serving Big Macs to a 500 pound person. There, the consumer takes the responsibility for his consumption. However, credit card companies routinely accept high risk customers because for every person with bad credit who goes belly up on cars and big screen TVs, there are five other people with bad credit who subsidize that loss to the bank by diligently paying 24% annually on their own balances. MBNA and friends wouldn't be in this business if they didn't make money off of it.

Since personal bankruptcy is SO damaging to the economy and to society-at-large -- even moreso than any medical problem a single person can have -- the legislation needs to be aimed at the credit card companies, who actually have the resources, and the decisionmaking power, to be accountable for personal bankruptcy.
posted by PrinceValium at 2:26 PM on July 26, 2002


some businesses are giving unsecured credit to people with bankruptcies on their records

You can, I believe, declare bankruptcy only once every X number of years (7?), so someone who has JUST discharged a bankruptcy and has good income might actually be seen as a good credit risk by some lenders.

It's still possible to get car loans and mortgages after a bankruptcy. Or even with plain old bad credit. You will just pay a higher interest rate for them, or have to put a lot of money down, or both. It's not an insurmountable problem if you've got a good job. Believe me, I'm still digging myself out of the credit hole I got myself into several years ago.
posted by kindall at 3:03 PM on July 26, 2002


I wouldn't legislate against McDonalds for serving Big Macs to a 500 pound person. There, the consumer takes the responsibility for his consumption.

Not necessarily.
posted by rushmc at 3:40 PM on July 26, 2002


my favorite quote from this discussion - Andrea's People need to learn that what you see on television isn't real.
posted by quonsar at 8:49 AM on July 27, 2002


At least one person mentioned the unforeseen joblessness part of the equation, which is important in considering why some people end up declaring bankruptcy.

Having very recently been to the brink myself (with my SO, who thankfully landed a job just in the nick of time), I understand how the best consumer can go wrong.

Consider his case: good worker who made good pay for many years, building up credit and paying it all off on time, as a good consumer should.

Then, hit by a layoff in the tech sector, he went as long as possible living off his savings and unemployment until putting food on the table seemed like it might be in jeopardy, and only then did he consider bankruptcy.

And all this time, mind you, he was searching as avidly as possible for a new job, but no one would hire him (not in his preferred line of work, nor any other). The economy sucks here.

I think this is going to happen to more and more consumers - they're fine as long as they're living paycheck to paycheck, buried in debt up to their eyeballs. But what happens when the paycheck vanishes, and there's no new one to take its place?

People will drain their savings, their stocks, and their 401(k)'s until they simply haven't got anything left, and then they'll file for bankruptcy when they're backed into a corner.

Of course, I'm a doomsayer, and I'm often wrong, but I think things are going to get very ugly in this country economically before they get better. I'm worried they're going to revive the idea of debtor's prison before it's all over. At least we're not *there* yet...
posted by beth at 1:33 PM on July 27, 2002


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