What's next? Debtor Prisons?

[Guest guest]

Bankruptcy law shows you get what you pay for

PUBLISHED: March 5, 2006

Chad Selweski

Columnist

In Washington lore, it's a classic case of poetic injustice Congress is

bought by the credit card companies in order to pass a bill that hammers those

people who can't afford to pay their bills.

When bankruptcy reform legislation was adopted last year, supporters said

that it would crack down on " deadbeats " who abuse the bankruptcy laws and avoid

paying their debts. But what we've seen so far in Macomb County and across

the country is a much different picture. The little guy with big money

problems is getting trampled in this process.

At GreenPath Debt Solutions, a credit counseling agency with 24 Michigan

locations, including two in Macomb County, deadbeats are hard to find. Most of

those snared by the new bankruptcy process are people who have suffered a

personal financial crisis.

GreenPath was among six agencies nationwide who participated in a survey

which revealed two disturbing trends since the new law took effect in October.

Nearly all -- 97 percent -- of those filing for bankruptcy and reporting for

mandatory credit counseling are unable to pay their debts. And four out of

five are broke due to dire financial circumstances, such as a job loss,

catastrophic medical expenses or the death of a spouse.

None of this should surprise Congress.

The experts -- bankruptcy judges, attorneys, academic researchers -- warned

lawmakers that most consumers seeking bankruptcy protection are not guilty of

reckless shopping sprees. They were told that employment and health issues

were the dominant factor.

But Congress instead listened to the banks and credit card companies who

have complained for years that they get shortchanged by debt-crazy consumers

seeking bankruptcy.

Capitol Hill kowtowed to Capitol One. And American Express. And VISA. The

reason is simple: The finance/credit industry has funneled $43 million worth of

campaign contributions to members of Congress since 1990. The companies who

benefited from the new law bought the best legislation they could get -- the

biggest overhaul of the bankruptcy law in a quarter century.

This special-interest spending spree ensured enough votes in the House and

Senate to defeat every pro-consumer amendment that was offered. Even

amendments to assist military personnel who went into debt while serving in

Iraq were

tossed aside.

The new rules, pushed through by the Republican leadership, make it more

difficult for consumers to get a fresh start by having many of their debts

forgiven. Instead, they are sent to court-supervised counseling and assigned a

rigorous repayment schedule, with little regard for individual circumstances.

" They have put new hurdles in the path of people who are already flat on

their back due to financial crises over which they have no control, " said Brad

Botes, director of the National Association of Consumer Bankruptcy Attorneys,

which conducted the national survey.

The overhaul points out the obvious double standard in Congress, which

allows corporations to use the bankruptcy process to slash jobs, wages,

pensions

and benefits.

Worse yet, GOP lawmakers left intact a so-called " millionaires loophole "

which contains provisions for wealthy individuals to file for bankruptcy while

sheltering assets from creditors in special trusts.

While the ranks of the bankrupt surely include schemers who flaunt the

system and attempt to shirk their debts, it also takes in the financially

unsophisticated and gullible who fail to read the fine print on those credit

card

applications.

The same credit card companies that complain about losses they suffer when

people can't pay are those that barrage consumers with mail and TV offers that

make bloated claims. The tempting advertising is scatter shot, with no

attempt to weed out potential customers already burdened with big debts.

According to a spokeswoman for GreenPath Debt Solutions, the NACBA survey

draws premature conclusions. The numbers may be skewed by the rush of

bankruptcy filers who beat the Oct. 17 deadline for the new law.

But if the survey numbers hold up over time, don't expect Congress to admit

a mistake and revisit the rules.

Lawmakers gave their big-bucks contributors what they wanted. And they

taught a lesson to the lowly consumers suffering under the new rules:

You get what you pay for.