Monday, April 4, 2005
Loopholes Help the Rich, Corporations
By United States Representative Lacy Clay
The U.S. House of Representatives is expected to consider the House version of S. 256, a law designed to make sweeping changes in this nation's bankruptcy laws. If the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 is presented in its current form I will vote against it.
Currently, many Americans file for debt protection under Chapter 7, where some assets are seized but where debts are erased. The new law would require individuals to seek bankruptcy protection under Chapter 13 — where the debtor would set up a repayment plan over a set number of years. (Historically, Chapter 13 has been used by businesses that need some time to get out from under their debts, but who have the means to do it.)
During a 12-month period ending Sept. 30, 2004, there were 34,817 business bankruptcies, out of the more than 1.6 million bankruptcy cases filed in federal courts. Contrary to the target of the proposed law, about half of all personal bankruptcies are the results of illness or medical bills.
Also, divorced women are 300 percent more likely than single or married women to land in bankruptcy court. And African American and Latino homeowners are 500 percent more likely than whites to have to file bankruptcy. With these numbers, it is no surprise that civil rights groups oppose the new law.
During Senate testimony Feb. 10, 2005 on the bankruptcy bill, Harvard Law School Professor Elizabeth Warren reminded legislators that while reform is needed, the bill targets the wrong group of Americans.
According to Professor Warren, one million men and women each year are turning to bankruptcy in the aftermath of a serious medical problem — and three-quarters of them have health insurance. Also, a family with children is nearly three times more likely to file for bankruptcy than an individual or couples with no children.
Congress must distinguish between good debtors from bad debtors. It is both moral and economically imperative that those Americans who work hard and play by the rules not be painted with the same brush as those who shirk their responsibilities.
As complicated as bankruptcy law is, the facts are simple. S. 256 will favor financial institutions over consumers. While the "reform" is supposed to penalize consumers who abuse bankruptcy laws, in reality they will hurt Americans deserving financial relief from high-interest debts, unexpected health bills and loss of income due to joblessness. And as their safety net shrinks, loopholes in the law expand the safety net for the richest Americans, who can sock money away in trust funds that will not be touched by bankruptcy.
The bottom line is that a remake of the law would make it easier for credit card companies (and their mega profits) to get their money back at the expense of the poor, the elderly and the sick, who often pay exorbitant credit card interest rates for many years, thus paying for their credit card debts many times over.
Does the 109th Congress want to destroy the American promise of a new beginning? At the birth of this nation, and at the insistence of the Founding Fathers, debtors' prisons were outlawed in the "New World." That was the one thing the Americas offered settlers willing to brave the unknown dangers and challenges of a "new" world in exchange for a new beginning on life.
The nation builders of the 18th Century subscribed to the idea that being poor was not a crime. And owing money did not warrant going to prison. So important was this notion — that poverty was not a crime — that bankruptcy laws developed based on the decriminalization of debt.
As the nation matured so did the bankruptcy laws, which are now fine-tuned to allow many Americans a chance to start their lives over — much like the early settlers.
Unless the poor and working class are protected in any new bankruptcy bill, I will oppose it, both with my advocacy and my vote.