Brain Fertilizer

I was surprised with this issue while on my house-hunting trip.

I see Chris Muir of Day By Day addressed the issue. I've seen it mentioned on a few other blogs, too (can't remember where right now...). It was the subject of the editorial cartoon in my newspaper this morning, too. Here's a Google news search that would help you understand all aspects of the issue.

Here's the thing. I remember nothing about bankruptcy reform in the recent election campaign, on the federal or state level. If this was such an important, vital issue, why did it not get more press beforehand? In fact, this bill was introduced five years ago! How could it sudenly become a huge issue in the 36 hours I wasn't paying attention to the news?!?!?

Granted, the bankruptcy bill that was passed in the Senate apparently does not fix a problem: people are capable of sheltering huge amounts of wealth from creditors. I suppose the passage of the bill without amendments to fix that aspect could result in outrage.

And, sure: I agree that it is wrong for someone to be in bankruptcy and retain wealth. Bankruptcy should be difficult, it should be painful, and it should be an extremely black mark on your record that takes you a few years to rehabilitate.*

At least one report seems to indicate that the new Bankruptcy Bill does take steps in that direction.

So which is a bigger problem? The rich avoiding penalties, or people going bankrupt 6-7 times in a decade because there is no penalty? I guess it depends on the numbers involved. Democrats seem jealousy-based: regardless of what the actual impact is on banks and the national economy, Democrats want to stick it to the rich and protect the little guy...ignoring the fact that (to pull numbers out of a hat), $1 trillion in little-guy bankruptcy funds written off hurt the rest of us little-guys far more than $1 billion in rich-guy bankruptcy funds written off.**

Obviously, Sen. Schumer feels the most important thing is to manage to stick it to wealthy. But in fact, I'm not convinced that Sen. Schumer's amendment would have even done that. I am about 80% convinced that Sen. Schumer's amendment was nothing better than a political ploy so he can claim Republicans don't care about the little guy***, rather than actually trying to make an effective amendment. The best evidence is that while all the Democrats supported the amendment, and one Republican joined in, they weren't able to get Sen. Olympia Snowe to vote for their amendment. If you can't get Sen. Snowe to vote against her fellow Republicans, you don't have a decent Democrat/liberal proposal. It's just that simple.

In all my research on this after the fact, I think I'm in most agreement with this op-ed piece.

First, it describes the proposed amendments as "poison pill". Considering who proposed it and who refused to vote for it, I consider that an accurate assessment. But the article goes on to say:

Few would argue that deadbeats who pile up credit they know they can't pay and then qualify to abandon those debts by filing under Chapter 7 provisions of bankruptcy law need to be made more accountable. But nowhere are there parallel provisions that make credit lenders accept greater responsibility for giving credit cards and loans to just about anyone. Consumers are bombarded with applications for credit cards and easy loans, whether or not they have the means to pay. Credit card companies openly solicit students on college campuses and tell high risk borrowers "no problem" to more credit.

The second problem with the bill is its one-size-fits-all treatment for those filing bankruptcy. The bill's provisions draw no distinction between deadbeats and those unfortunate enough to get caught in financial hell because of catastrophic medical bills or other life-changing events.

Like so many other bills, this one comes down hard on consumers with a lopsided solution to an economic problem that has two sides and needs two solutions. Creditors need to accept some culpability for bad debt from risky loans and credit. We're waiting on that bill.

To summarize: the current Bankruptcy Bill is better than nothing, because it makes bankruptcy a little more difficult than before, rather than an easy out. It is important to get this bill passed without amendments or adjustments because the political will to pass it is present; any attempt to mess with it risks having it languish on the table for another five years. But this bill is only a minor fix. Our bankruptcy laws need to be adjusted so that credit companies are held more accountable for their practices, so that distinctions between deliberate deadbeats and people truly facing impossible circumstances are more easily drawn, and so wealthy people are not able to shield assets from the bankruptcy proceedings.

Write your congressman now!

*the point of the editorial cartoon seemed to argue that easy credit opportunities are encouraging people to get too far in to debt, and then have no qualms about extending credit even to someone coming out of bankruptcy. That's a big problem with bankruptcy, too.

**My terms might not be exactly correct. You know what I mean.

***when, in actuality, Republicans have demonstrated their strength and willingness to ignore the whining of any special interest, rich big-guy or fundamental little-guy, if they feel it may cause more problems for everyone later. Democrats have demonstrated no such strength.