Dissident Voice

March 22, 2003

Few may have noticed that the House has passed a controversial bill to “reform” the bankruptcy system. The overwhelming vote on March 19 -- 315 members voted “yes” and 113 voted “no” -- belies just how controversial the legislation is.

Dozens of major consumer, civil rights, labor, women’s, community and religious organizations have gone on record in opposition to the legislation -- in the current and in previous Congresses.

It’s easy to see why. Ninety percent of personal bankruptcies are caused by the loss of a job, high medical bills or divorce. With the economy slumping and many working families struggling to keep up, it doesn’t make sense that Congress would be considering legislation that would harm ordinary Americans who have fallen on hard times through no fault of their own.

Ninety percent of personal bankruptcies are caused by the loss of a job, high medical bills or divorce.

The purpose of the bankruptcy system is to get the debtor back on his or her feet by managing existing debt and creating a solid financial footing going forward. But this legislation would make it more likely that debtors will lose their homes, their cars, and a chance at a fresh start with a clean slate. Here are some examples showing how devastating this bill would be:

Under the bill, homeowners who fall prey to predatory lenders -- those that charge exorbitant rates to people who otherwise can’t get credit -- would find no help in the bankruptcy court. Seniors who are unwittingly duped into loans could end up losing their homes, while the unscrupulous finance companies that provided those loans, or the “legitimate” banks that buy those loans, would get their money.

In a second example, women who are owed child support would receive a “priority” for their claim in bankruptcy court. That sounds great, until you realize that while their ex-husbands are in bankruptcy there is very little -- perhaps nothing -- to collect. Then, once the bankruptcy case ends, so does the priority. That means that to get the money they’re owed, women then have to go to court to fight with large commercial institutions and credit card companies who also have claims. And since this bill would allow even more claims than before to survive bankruptcy proceedings, it’s less likely that women and children will collect their priority claim.

It’s bad enough having to face bankruptcy when you’re unemployed, seriously ill or going through a divorce.

The bill also does nothing to help people who lose their health insurance when a medical crisis hits. It does nothing for the millions of people who are out of work and fighting just to keep a roof over their head. It does nothing to stop credit card companies from luring college students and others into traps where the easy availability of a plastic card leads to serious debt, ruining credit ratings for years to come.

On the other hand, the bill remarkably legitimizes strong-arm tactics employed by credit unions against their members who have filed for bankruptcy. It protects the interests of predatory lenders, but not their victims who are forced into bankruptcy when they can’t keep up with unconscionably high payments. It does nothing to require that credit card companies disclose the true cost of the credit they provide to cardholders.

The bill puts the profits of powerful commercial organizations ahead of the welfare of women and children who are owed support. It preserves a “homestead” exemption that will allow many “bankrupt” millionaires in five states to continue to shelter their assets in mansions, while at the same time making it easier for residential landlords to evict their tenants who have filed for bankruptcy protection.

It’s bad enough having to face bankruptcy when you’re unemployed, seriously ill or going through a divorce. But if Congress changes the bankruptcy system and makes it harder for consumers to get their finances back in order, that’s just rubbing salt in the wound.

That’s not fair, and not in the long-term interests of debtors, creditors or our economy. We can only hope that the Senate takes the concerns of ordinary Americans a little more seriously when it takes up the legislation later this year.

Adam J. Goldberg is a policy analyst with Consumers Union, a non-partisan public interest group working on consumer issues. This article first appeared in Tom Paine.com (www.tompaine.com)