You may have read about the new bankruptcy bill which is headed for the House. Major provisions include a required means test designed to certain filers from using Chapter 7, as well as added attorney certifications and disclosures. What should we, as church members, think of this?
Politically, there are arguments both ways. The bill’s proponents claim that the means test will crack down on high-net-worth filers who are abusing the system. Opponents claim that the bill leaves open key loopholes and that it will reduce representation because of the new burdens on attorneys. One interesting wrinkle from an LDS perspective is that Utah leads the nation in bankruptcies.
And it seems that religious arguments can be made either way as well. On the one hand, we are counseled to be self-reliant and to learn principles of hard work and industry. If the current system really is allowing people to unjustly escape from debts, then perhaps support for reform can be found in those gospel principles.
On the other hand, we are counseled to forgive our debts as God forgives us. It seems odd to castigate the idea of bankruptcy when our own entire gospel is based on a divine bankruptcy plan, so to speak, wherein all of our debts will be forgiven. In addition, church leaders often ascribe to the idea that mothers ought to remain in the home; to the extent that the new bill forces more mothers into the workforce, it may be negative.
As with the political arguments, it looks like religious arguments give no clear answer here.
> In addition, church leaders often ascribe to the idea that mothers ought to remain in the home; to the
> extent that the new bill forces more mothers into the workforce, it may be negative.
I must say that I am opposed to the apparently common practice of removing mothers from their homes and chaining them up in factories belonging to greedy capitalists until their husbands come up with the money to free them. At least, that’s what I assume you mean when you refer to mothers being forced into the workforce (something you’ve mentioned several times in other threads.)
In general, the tougher requirements of the new bakruptcy law kick in for those households with income above the state median (adjusted for family size). Now, if that income is already based on both spouses working, obviously the new bankruptcy provisions are not forcing the mother to work. So the objects of your concern must be those families where the father alone is making more than the median income. It seems to me that such families have room to adjust their lifestyle expenses downward if they want to keep the mother in the home.
The new bankruptcy bill is a moral travesty and any Latter-day Saint lawmaker who voted in favor of this Orwellian-titled “Bankruptcy Abuse and Consumer Protection Act of 2005” ought tto be ashamed.
I am a lawyer in the Bankrtupcty Section of a large Texas law firm. I don’t typically handle consumer (i.e., personal) bankruptcies and I am a conservative/libertarian who most often votes Republican. Howewer, the consumer portions of this bill were written by the credit card companies and financial institutions. These same companies made ginoromous contributions to the polticians who have voted on this bill. There are so many egregious provisions that it would be difficult to list all of the corporate paybacks that are contained therein.
For one opinion piece that is particularly worth reading, go to
http://www.latimes.com/news/opinion/la-oe-scheer15mar15,0,6231718.column?coll=la-util-op-ed
(registration required) A sample from the piece:
“A key sponsor of the bill, Sen. Charles E. Grassley (R-Iowa), actively opposes abortion and same-sex marriage on biblical grounds yet believes the Good Book’s clear definition and condemnation of usury is irrelevant. The Old Testament, revered by Jews, Muslims and Christians alike, mandates debt forgiveness after seven years, as was pointed out earlier this month by an organization of Christian lawyers in a letter to Grassley.
“I can’t listen to Christian lawyers,” said the senator, “because I would be imposing the Bible on a diverse population.”
Sadly, when it comes to serving the prerogatives of banks, you can forget about those family values that folks such as Grassley prattle on about. The bill he wrote placed mothers and their children behind credit card companies in the line for a bankrupt ex-husband’s paycheck, for example, which is positively Dickensian. Expected to sail through the House and onto the president’s desk in the next few weeks, the bill turns the federal government into a guardian angel of an industry gone mad, placing no significant restriction on soaring interest rates and proliferating fees.
One extremely modest amendment that was rejected by the Senate would have blocked creditors from recovering debts from military personnel if the loans had annual rates higher than 36%. Also killed were sensible amendments designed to protect those ruined by a medical emergency, identity theft, dependent-caregiver expenses or loss of income due to being called to full-time military duty through the National Guard or the Reserve.”
To me, the bill is unconscionable. Yes, individuals need to be more responsible with their personal finances, as the scriptures and our leaders have consistently reminded us. But the fact is that most people filing for bankruptcy are not “abusing” the system–they’ve been abused by it. Lenders, too, have moral responsibilities as the scriptures clearly elucidate. Credit card companies are sending credit cards unsolicited to people, marketing their instruments of fiscal slavery to High Schoolers, using bait-and-switch tactics to entrap people and keep them in financial chains that last a lifetime. All while reaping record profits. The bottom line is this bill will keep more people deeper in debt for longer periods of time–it will do great injury to the most vulnerable and least powerful people in society and line the pockets of Big Business at the same time. I used to think Democratic characterizations of Republicans as being completely beholden to Big Business interests were crude and inaccurate. This bill makes me wonder. I see the Republican party returning to its Gilded Age roots, hiding its true agenda behind the popular rhetoric of Reagan and Goldwater. Reagan and Goldwater fought the Big Business wing of the party (Rockefeller and-who was that other guy? Oh yeah–Bush wing of the party). Now the Republicans are the party of both Big Government and Big Business and are heartless to boot. Quite a hat trick.
The bill should more aptly be titled “The MBNA, Capital One, and Citicorp Campaign Contribution Gratuity of 2005.”
LINK HERE
The link above didn’t work so I’ll try again.
How does the bill place child support behind credit debt? Credit debt is unsecured debt, the least recoverable. Surely the bill does not create a new category of debt below that.
Also, I’d be very interested in hearing what all the evil things are in the bill.
For example, the provision limiting chapter 7 filings by high income filers doesn’t seem like a big problem, since it:
1. Only applies to the wealthier filers amd
2. Still lets them file, just requires them to make at least some attempt to pay back their debt (through a chapter 13 filing).
I understand that the bill cracks down on attorneys, and so it is unsurprising to see it strongly opposed by attorneys, but what are the specific problems?
Why should “we, as church members, think” a particular way about the bankruptcy bill? No doubt, we have gospel principles that help shape our thinking (e.g., accountability and forgiveness). But, a joy I find in the gospel and the Church is that we are absolutely free to come to our own conclusions on most secular things. Of course, I’m making more out of your innocent question than you intended (sorry), but I always think it’s important to clarify that the Church does not expect political group-think. As shown by the two excellent comments above, we, as church members, just like non-church members, will probably disagree quite strongly on portions of this significant legislation.
Frank,
As I understand it, it asks for a number of attorney guarantees in the filings. My initial impression is that these are insane.
As an attorney, I do my best to file accurate documents. I don’t lie to the court. I follow ethical obligations. But at the end of the day, I go with what my client tells me. And attorneys rely on their clients’ assertions _all the time_. If a plaintiff files an interrogatory saying “how many directors does your company have?” and I ask my client and they say they have five directors, I file this.
Suddenly, under the bill, I may _personally_ be on the hook if documents that I filed in good faith contained false information (i.e., my client lied to me).
That’s a pretty drastic provision.
Kaimi:
I don’t think you identify the correct gospel priniples to apply to the PRO argument. Banruptcy is not about self-reliance, hard work, and industriousness bacause an individual can exhibit all of those characteristics in spades and still justifiably file for bankruptcy. The real issue at hand is individual responsibility. Should we support government raising the bar of responsibility for financial obligations? I think as Mormons we should support any legislation that would promote increased levels of individual responsiblity. However, based on my reading of the law in question and its projected impact I’m not sure it will have that much of an effect.
As for your CON arguments the “mothers-in-the-home” issue is a non-starter without foundation. And I think you misapply the counsel to “forgive our debtors” (I think that’s what you meant to say). This counsel is obviously a reference to sin, and even though the Savior used the Parable of the Unmerciful Servant to illustrate Divine Mercy, one should not interpolate that parable to have any meaning with respect to actual financial dealings among the populace. Mormon doctrine does counsel us to be merciful ourselves but does government-mandated mercy count? “Render unto Caesar that which is Caesar’s and unto God that which is God’s.”
Eric:
Some of the information contained in your post is completely inaccurate. For example, of the seven debt categories alimony and child support get first priority, followed by attorney fees, and then secured debt. CC debt is well below in priority. The new bankruptcy law would help ensure that the poorest households in the US (single mothers with minor childen) would receive more of the necessary supoprt they deserve. By and large my reading of the law is that the net effect will be relatively small. In the states with the highest bankruptcy rates the vast majority of filers utilze Chapter 13 anyway.
Steve:
That’s a lame cop-out. As Mormons we have a defined set of principles and doctrines by which we ought to live and act. That doctrine is the same for us all and consequently our actions should all be in accord. You seem to be confusing Church leaderss pragmatism with respect to government relations (by law they cannot support political parties or candidates without severe financial penalties in the US) with counsel on how we should behave. Church leadership had come out with specific policy stances on specific issues (i.e. legalized gambling).
Kaimi:
You worry too much. But then again I think that’s what attorneys are paid to do.
Paul,
How far do you take your observation that “our actions should all be in accord?” Does that mean that on every bill (e.g., curfew times, type of school uniforms, how school vending machines should be stocked, each of the thousands of lines of an appropriations bill, acceptance of annual percentage rates of 35% and rejection of 36%), Mormons would reach the same conclusion, if living by the Spirit? I just don’t believe that the doctrines of the gospel lead directly to one answer in the myriad political options available on most issues (except on a few issues, like gambling, as you mention). I don’t mean for this to come off as confrontational as it might sound; I’m intrigued by your observation (but too rushed to decently massage my point).
As a Dallas attorney wrote to Senator Cornyn:
“Sending an unsolicited credit card to many people is like sending a case of Jack Daniels to an alcoholic and then sending him a bill for the booze a month later. Throwing bankrupts into indentured servitude to the credit card companies isn’t the solution to the non existent problem manufactured by the lenders.”
Perhaps a constructive solution to the problem of over 1 million personal bankruptcies per year, one which would actually promote “responsibility” would be to prohibit credit card companies from extending unsecured credit to those who have filed bankruptcy for a period of five years after the filing. Currently, these lenders will send out credit card applications (and sometimes they just send a credit card that is activated upon usage) to folks weeks or even days after they have received a discharge. When an amendment to limit the interst rate credit card companies charge to less than 36% fails in the Senate by a 76-24 vote, something is seriously wrong. Just MHO.
And the obviously related question: When did charging interest — a practice clearly prohibited by the Bible — become acceptable?
Paul:
After reading the relevant sections of the new bill (211 and 212), I think you are correct that the priority scheme is being changed to put child support and alimony payments AHEAD of administrative expenses. However, the LA Times writer is not being completely inaccurate. As Consumers Union points out (correctly, I believe):
“Today, child support is among the few obligations that cannot be wiped away in bankruptcy. By allowing more credit card and other debts to also survive the bankruptcy process, the bill puts banks in competition with parents trying to collect child support from former spouses who have declared bankruptcy. The bill’s provision that would require child support to be paid first when distributing the assets of chapter 7 debtors is virtually meaningless. About 95 percent of chapter 7 debtors have no assets to distribute in the bankruptcy proceeding.”
http://www.consumersunion.org/pub/core_financial_services/001980.html
I think the point the consumers’ rights groups are making is that by making it harder to discharge other debts, it will be more difficult to collect child support and alimony from a debtor post-bankruptcy. This is not the strongest argument against the bill as there do seem to be some protections in the bill for the child support and alimony recipients (i.e., it is still the case that such obligations are nondischargeable and as you point out, Paul, the bill actually does place them into a higher priority than under the current Code).
> When an amendment to limit the interst rate credit card companies charge to less than 36% fails in the Senate by
> a 76-24 vote, something is seriously wrong. Just MHO.
Eric, as far as I can determine, no such amendment failed in the Senate by such a vote. An amendment to cap the annual interest rate for any consumer credit at 30% failed on a 74-24 vote (2 not voting), so that’s probably what you’re referring to. If you’re going to make assertions of fact, please make sure they are not fiction. There’s already too much misinformation about legislation out there.
That said, I can see how it looks bad. However, the definition of usury has up to now been left to the states, and the amendment would have overriden state laws allowing a higher rate. So there are issues of state power involved, beyond the simple question of setting a maximum interest rate.
Steve, good point. I think we expect the church to address all issues.
But this is an important issue. I think my husband and I would live in a tent on our paid-for extra lot before we would file bankruptcy. I have family members who have filed for bankruptcy many times. They consistently get themselves in over their head, don’t work regularly, don’t pay their bills like they should and file for bankruptcy. Sometimes I can understand it, but more often, I think these people get themselves in a bind by their own bad money management. It becomes a habit and I think it’s a travesty.
I don’t know anything about the bill so I can’t comment on that, but I do think a lot of people file for bankruptcy who should simply live more providently and frugally.
Of course, maybe next year, I’ll be living in a tent.
> And the obviously related question: When did charging interest – a practice clearly prohibited by the Bible –
> become acceptable?
Well, the Bible doesn’t prohibit it completely. The Jews were forbidden from charging interest when lending to each other, but not when lending to Gentiles. And in the parable of the talents, Jesus seems to endorse the idea of usury (in its original meaning of “interest,” not its current meaning of “outrageous interest”):
26 His lord answered and said unto him, Thou wicked and slothful servant, thou knewest that I reap where I sowed not, and gather where I have not strawed:
27 Thou oughtest therefore to have put my money to the exchangers, and then at my coming I should have received mine own with usury. (Matt. 25:26-27)
Well, the way that the law has evolved is that a credit card company can charge the highest rate of interest it can get approved in any state (usually South Dakota) even if the state the card is shipped to, used in and defaulted on has a lower rate.
So, if you are in a state with a usury law with a 10% cap, and you get a card from MBNA, and you miss a payment, your interest rate will suddenly jump to 36% or higher and they will seek that amount of interest in any judgment they seek against you.
If you have some hideous problem, they can and will call you up post bankruptcy filing and castigate you for not planning things,such as the death of your third child, with great forthought and abuse your spouse for not having life support cut off prior to breaking the life time cap on your health insurance.
One should keep track of such things after all.
BTW, from law.com
Require the debtor’s attorney to certify the accuracy of all factual allegations in the debtor’s bankruptcy petitions and schedules. Attorneys would be subject to sanctions if any factual inaccuracies resulted in the dismissal of the client’s Chapter 7 petition or in its conversion to a Chapter 13 petition, which requires some repayment of debt. The attorney could also be responsible for lawyer fees of the trustee or bankruptcy administrator who contested the Chapter 7 discharge.
Under Bankruptcy Rule 9011, bankruptcy attorneys, like all lawyers in federal court, must certify that pleadings and other items filed are supported by the facts. But the rule does not apply to bankruptcy schedules listing a debtor’s financial information because those are prepared almost entirely from information supplied by the debtor, according to bankruptcy attorneys. The debtor bears responsibility for such schedules. S. 256 does not have a parallel requirement on creditor attorneys.
The bankruptcy bill also would require debtor’s attorneys to certify the debtor’s ability to make payments under a reaffirmation agreement. Debtors now do not have to discharge all outstanding debts. They can choose to “reaffirm” — maintain liability for — certain debts. Before a reaffirmation agreement can be approved, the debtor’s attorney currently must only certify that the reaffirmation is voluntary and will not impose an undue hardship on the debtor.
And, finally, the bill contains provisions labeling any “person” who assists debtors with their bankruptcies in return for compensation a “debt relief agency.” This section of the bill would impose a number of disclosure requirements on those assisting debtors and would require attorneys to include in their advertising and official communications a statement that “We are a debt relief agency.”
And yes, I’m biased. I managed to avoid bankruptcy through the first two funerals and deaths, but the third one put me under. I know, I should be castigated as Joseph Smith was for his going bankrupt.
I would have harsh thoughts for Senator Hatch, except what he has done is ensure an explosion in bankruptcy paralegals, an interesting niche. It should be interesting to see how that plays out. I wish him every blessing I have experienced in this life, and give the same wish to all who agree with him.
Steve:
This bankruptcy bill is a bad context for ferreting out what I mean by “acting in accord” simply because this is bad law all the way around in that there is no principle behind it. To give all a little perspective I’m as Republican as they come (I donated a lot of time and money during the last campaign cycle) and even though this bankruptcy law has been championed most notably by republicans I just think it’s bad law. If I were to identify a guiding principle to focus Mormon behavior in this instance it would be agency. Virtually all laws affect our ability to fully exercise our agency and so as Mormons we should oppose all laws not based on principle in order to better preserve our agency. Under this principle alone I would reject this law. If you want an extended emplanation feel free to send me an email.
“The wicked borroweth, and payeth not again.” Ps 37:21
“If thou borrowest of thy neighbor, thou shalt restore which thou has borrowed”. D&C 136:25.
“Behold it is my will that you shall pay all your debts.” D&C 104:78
We are constantly counseled to stay out of debt. Unfortunately, many do not, and try to escape the consequences of incurring that debt. There was a time when people in the US considered it a matter of honesty and honor to repay their debts. Harry S. Truman took 15 years to pay off a debt. I don’t know the particulars of the bankruptcy bill well enough to comment on it in a learned fashion, but I do believe that far too many have abused the system since the bankruptcy laws were loosened some years ago. Even among those I know well, I have known those who seriously considered taking out bankruptcy because they had incurred too much consumer debt.
So it sounds like there are provisions about increasing attorney incentives to find out about fraudulent claims. Is this unprecendented? Are attorneys to be held liable in a way no attorney has ever been liable for a client? If so, then presumably there will be fewer bankruptcy attorneys and a rise in the price for bankruptcy. Right now personal bankruptcy is around $400 in Utah, $1100 for chapter 13 (average). How much higher will the prices be with these new obligations? Will these obligations actually discourage fraud? If so, how much? Are attorneys currently given good incentives to avoid fraud, or is it entirely up to the trustee? We do want to discourage fraud right? And the only people anyone would bother prosecuting would be in cases where there were a lot of assets unaccounted for, right?
Besides the changed attorney provisions, are there any other parts of this bill to worry about? Certainly raising the bar for well-off people filing chapter 7 doesn’t bother me. Many of them really should be filing 13 and paying off some debt. The argument that it is harder to defraud insurance companies and so you are less likely to pay child support sounds like a pretty roundabout way to make it be “hurting the children”. Do Chapter 7 filers usually become model child support payers and now they won’t?
I serve in Young Men’s in my ward, and just this last week we watched a seminary video entitled “The Mediator”. It is an enactment of the story of the man who borrows money, is unable to pay, is on the verge of being taken to prison, and is then saved from his debt by a friend who intercedes. In return for the friend paying the debt, the debtor agrees to be in debt to the friend who saved him. For some reason, this allegory seems to have bearing on this discussion.
Can mercy rob justice? Both mercy and justice are divine principles. And I find it interesting that, though our debt to God is forgiven thanks to the Savior, we are also indebted to the Savior for his having paid for our sins. So we are never truly freed from the debt; we always bear an obligation, it is just an obligation of a different type.
Any other thoughts as to how the dual (and equal) principles of mercy and justice might apply to this issue?
Eric James Stone: Your factual correction is appreciated but the basic premise underlying my point remains: there is something wrong when an overwhelming majority in the U.S. Senate vote against a measure so seemingly sensible. Your nit, it seems to me, is one that need not have been picked–but I appreciate the correction anyway.
On the subject of usury, Eric, I would say that a direct pronouncement establishing the law by the Lord might carry more weight than a parable. While folks are throwing scriptures around, we might look to Exodus 22:25: “If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury.” Usury meant interest. Interestingly, the scripture qualifies the proscription on charging interest by limiting it to loans made to the poor (so perhaps there is no conflict with the parable after all). These are the people (the poor) targeted by the unsecured credit lenders these days. It used to be that credit cards were used by people who made better than average wages, and it would take some time to establish a strong payment history before the bank would increase the credit limit. Now, they are hawking credit cards to kids in high school. My DOG once got an application. When I bought my first house my wife and I made a combined $35,000 a year. A week after we closed, I received an unsolicited credit card in the mail with a $5000 credit limit (and, incidentally, a 19.9% interest rate–almost a bargain these days).
The rise in bankruptcy filings tracks directly with the rise in the number of credit cards issued by financial institutions over the last 20 years. That many individuals have been irresponsible with credit is undeniable. But what of the irresponsibility of the lenders in making credit so easy to obtain? And what of the deceptive and predatory practices they so often engage in to keep people trapped in a cycle of debt? The new bankruptcy bill rewards these purveyors of interminable debt in a naked payback for lining the campaign coffers.
Indeed, people should be wise in their use of credit and laws that encourage this might be appropriate. But do not be fooled by this bill that calls itself the “Consumer Protection Act.” It is nothing of the sort.
While we are considering the scriptures, someone perhaps could enlighten me as to how the new bankruptcy bill fits in with the following:
Zechariah 7:10: “And oppress not the widow, nor the fatherless, the stranger, nor the poor . . .”
What irks me as a bankruptcy practitioner (again, I specialize in chapter 11s and not individuals) is that bankruptcy reform has been thoughfully considered by practitioners, professors, independent commissions, etc. since the last round of amendments in 1994. Many well considered proposals were submitted to Congress. Some few have been adopted. Most were chucked out the window before the ink was dry. This bill (on the consumer side) was written by the big financial institutions. Anyone who believes in a free system of self-government ought to be very concerned at the way this legislation was drafted, “debated,” and passed. I don’t care if you are Republican or Democrat or whether you think bankruptcy is too easy to obtain or the measures in the bill are too draconian–the process here was seriously flawed.
So anyone who has a financial interest in a law should not write any laws.
Does that include lawyers?
Frank:
To try to answer your questions–
Yes, it is unprecedented to make attorneys verify an individual debtors’ schedules for factual accuracy. I recently did a pro bono chapter 7 case. All the information I had about the debtor’s assets and liabilities came from the debtor. I checked the person’s credit report and asked as many questions as I reasonably could to ensure the accuracy of the information in the schedules. But under the new law, if there are inaccuracies, I would be responsible and could be sanctioned. The current law provides a penalty to the debtor who signs the schedules–I believe it is up to five years in prison and a $50,000 fine (but, Eric James Stone, please don’t hold me to that; I don’t have the US Cide in front of me). This, it seems, is a pretty good deterrant to fraud.
As to how much the price for filing bankruptcy will increase as a result, that is an open question. The bill does increase the amount it costs to file but I think you are referring to the price a lawyer charges a debtor. There is speculation that many attorneys simply will not want to take the risk, making it more difficult for a potential petitioner to find an attorney. This would , of course, please the credit card companies who can continue to collect 30% interest, overlimit, and late fees ad infinitum. It may also lead to a marked increase in pro se filings, a nightmare for our already overworked bankruptcy judges and clerks.
As to how many attorneys would actually be sanctioned for inaccuracies in their clients’ schedules, who knows. It is the potential, however, that could have a chilling effect on the profession.
Jonathan:
I like your Mediator analogy. One thought: the credit card companies actually make money on most of the people who end up filing for bankruptcy. Someone who purchases, say $5000 worth of goods on a credit card with a 20% interest rate will pay $1000 per year in interest (roughly). Many people who get too deep in debt will pay only the minimum payment each month. If the minimum payment is, say 2% of the outstanding balance, then the debtor is just spinning his wheels and not reducing the principal at all. If he is late on a payment, the bank will tack on a $35 late fee, which will put him over the limit, so the bank will tack on a $35 overlimit fee. And the interest rate will no be jacked up to 25 or 30%. People will typically try to juggle multiple cards and make payments for as long as they can before filing for bankruptcy. The point is this: the banks get paid back in full, with intertest, for the amount originally borrowed. But the poor debtor still has a huge balance. Who owes whom? What the banks want is not to prevent bankruptcy altogether–they just want people stuck in the debt trap for longer before they file. The credit card companies made record profits last year–the 1 million+ perosnal filings didn’t put a dent in it. Again, who is robbing from whom?
David:
Legislators should write the laws, with input from their constituents and, on technical matters, from professionals and experts in the field. Certainly, they should consider the interests of the financial institutions. Incidentally, I can’t really blame the landlords and credit card companies for lobbying, contributing, and working to influence the Congress–I just think the members of Congress ought not let them write the entire bill with little or no consideration to the voices of those who, shall we say, are not quite so sophisticated in the ways of Washington, D.C.
Some seem to argue that the credit card companies should forgive the debt, because that’s what the teachings of the Savior imply.
This reminds me of something that happened to me when I was seven years old. My brother Michael and I were playing with our respective collections of Matchbox cars. My brother took a favorite of mine, a white tow truck, and began to play rather recklessly with it, eventually breaking it against the wall. Brokenhearted and outraged, I went to our mother demanding justice: my brother clearly should give me one of his cars to replace the one of mine that he broke.
My mother responded, “What would Jesus do in your situation?” I immediately knew what she was getting at, but I also saw the injustice in her implied solution. I replied, “That’s not fair. What would Jesus do in Michael’s situation?”
What would Jesus do if he owned the credit card company? I can’t say for sure, but he surely wouldn’t employ their manipulative tactics to lure consumers into debt, and he probably would provide some way for them to escape it when they made a mistake (though I think some form of repentance would be required). But for those who think that the discussion ends there, who say, “That proves it! The bankruptcy law is immoral!” I would say something similar to what I said to my mother, “That’s not fair. What would Jesus do if he were the one in debt?”
I think we will see an explosion of pro se filings and bankruptcy paralegals. Where that leads the system will be an interesting question, but I suspect it will have major impacts.
Eric,
> On the subject of usury, Eric, I would say that a direct pronouncement establishing the law by the Lord might
> carry more weight than a parable. While folks are throwing scriptures around, we might look to Exodus 22:25: “If
> thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt
> thou lay upon him usury.” Usury meant interest.
As I said, the Jews were prohibited from charging interest when loaning money to each other (That’s what “my people” means in this context, so the limit in this verse is not on charging interest to the poor in general, but only to the poor Israelites.) (I probably should have said Israelites rather than Jews in my original comment.) As I also said, they were permitted to charge interest when loaning money to Gentiles. (Deuteronomy 23:20: “Unto a stranger thou mayest lend upon usury; but unto thy brother thou shalt not lend upon usury: that the LORD thy God may bless thee in all that thou settest thine hand to in the land whither thou goest to possess it.”) So it’s pretty clear that charging interest (which, as I pointed out myself in my comment, was the original meaning of “usury”), in and of itself, is not prohibited by the Bible.
> While we are considering the scriptures, someone perhaps could enlighten me as to how the new bankruptcy bill
> fits in with the following:
>
> Zechariah 7:10: “And oppress not the widow, nor the fatherless, the stranger, nor the poor . . .”
I assume you’re talking about the poor who make more than the median income for their state, who will now be forced to use Chapter 13 instead of Chapter 7?
Actually, I am thinking of the amendment to 11 U.S.C. section 362(b), which will except from the automatic stay “the continuation of any eviction, unlawful detainer action or similar proceeding” brought by landlords who have obtained a judgment for possession of residential property. In other words, of all a person’s creditors, landlords will be given a special exemption from the effects of the automatic stay and will, under certain circumstances, be able to throw families who have just filed bankruptcy out into the street. But I guess that’s OK. After all, if they didn’t pay their rent, they should have to pay the consequences. Mercy can’t rob justice, right? The workhouses are still in operation, right? Soup kitchens still functioning? An automatic stay for deadbeats?–humbug!
Eric,
From your rhetoric perhaps you would favor a law that made it illegal to evict someone. Since bankruptcy can take a long time, it is a substantial burden on the landlord to have squatters refusing to pay rent. Eviction is its own process and has its own safeguards and laws. Is there some reason we should tie eviction law to bankruptcy law?
Also, the “chilling effect” is going to be reflected in a higher price. Right now there are plenty of attorneys advertising. Is it your prediction that prices will skyrocket and most attorneys will disappear? How many fraud cases are there now? If there are very few, it may not really be a credible threat that lying results in fraud prosecution. Stronger incentives may be in order (or not, I really don’t know). Here is a numeric example: suppose 1 in 1000 bankruptcies resulted in a 10,000 fine for the lawyer (we’ll ignore jail as unlikely). Then the 10,000 fine must be spread out over the 100 bankruptcies, adding $10 to the cost of filing. Is it your belief that fraud will be prosecuted at that level? That doesn’t sound like a huge deal.
I stand on the side of Eric Soderlund and Ethesis. Bancruptcy is an abused option, however, not everyone that declares bancruptcy is a scum sucking bottom dweller. That place is reserved for the credit card companies that make credit so easily available.
I get on average three offers a day for credit cards. If I was a bit younger and unschooled, these offers would be a huge temptation. The credit givers should be made partially responsible for their egregarious offers.
Then I turn to the ulitmate of responses: We believe in being subject to kings, presidents, rulers, and magistrates, in obeying, honoring, and sustaining the law.
If I must stand by and watch tax dollars spent on abortions, I will also allow a person to file bancruptcy without judgement of him or her in the eternal sense. Most people are not trying to get away with something. Most are seeking relief due to unforeseen circumstances.
Eric,
You shame me with your altrusim. I hope someday that my concern and generosity for the poor will be as great as yours, so that I will be willing to force a third party to continue to provide shelter at their own expense. That will really demonstrate my mercy and compassion.
The problem is that the bankruptcy code reflects two ideals, the legal, that requirements that lawfully entered agreements be fulfilled (repayment of debts); and the equitable, that many times debtors need a fresh start. The current code is a balance. The problem with many arguments is that they only reflect one ideal. For example, Eric James Stone reduced the bankruptcy bill to “[forcing] a third party to continue to provide shelter at their own expense”. This is the result of the bankruptcy code in some situations. The code also results in families being kept off the streets. I could attack ESJ’s comment by saying “well you must want people to be homeless”. It is unfair to reduce the bankruptcy bill to such extremes on either side.
We tried the extreme “justice side”. Debtor’s prison didn’t work very well.
Bankruptcy is a delicate balance, and any changes to it should be well thought through and analyzed. It should not be run roughshod with propaganda.
On paper a lot of things sound good – Let’s not let the wealthy walk away from their debts! How much is enough to be wealthy? Is there an absolute line? Sliding Scale? How do you account for regional differences? $60k a year in LA or NYC is barely getting by, in Alabama you can live very well. What about retirees or those who have reductions in income? How about the potential for fraud? How do you work with trusts?
I won’t state that the bankruptcy bill is perfect, but unless the new bill is well thought through, studied and wel drafted, we will be worse off in the long run.
EJS:
There are numerous protections in the current Bankruptcy Code for lessors of residential property. See, e.g., 11 U.S.C. sections 365, 502, 503, and 507. The automatic stay provisions are, and have been, representative of one of the overarching goals of Bankruptcy Law in the United States for many many years, namely, allowing a debtor who files bankruptcy some “relief” from the collectgion activities of creditors. Under current law, creditors of all stripes are stayed for a short period of time from pursuing collection activities, enforcing liens, recovering personal property, or evicting a debtor. Creditors with good cause can move the court for relief from the stay, which relief is often granted.
Exceptions to the operation of the automatic stay have traditionally been reserved for tangential activities (not direct collection of debts) or activities for which there is a very strong public policy favoring the exception. The new amendment excepting certain lessors from the operation of the automatic stay is the result not of a determination that public policy favors such a change but rather the manipulation of the Code by one particular special interest group with influence over certain influential members of Congress.
Jay S.,
I reduced one particular provision of the bankruptcy bill, not the whole bill. That provision allows landlords who, prior to the filing of backruptcy by the renter, have already obtained a court order allowing them to take possession of their own real property to do so. So, while it is true that, as Eric Soderlund said, it will allow landlords “…to throw families who have just filed bankruptcy out into the street,” the landlords already had the right to throw families who were just about to file bankruptcy out on the street. Since a family that has just filed bankruptcy and a family just about to file bankruptcy can be equally poor, the poor are oppressed just as much in either case by allowing the landlord to evict them. So it really doesn’t make sense to blame the bankruptcy law for oppressing the poor under those circumstances; as Frank pointed out, it is eviction law that does so (assuming eviction to be a form of oppression.)
Eric:
What about the financial hardship on the landlord created by the tennant that refuses to pay and then refuses to leave? You assume that the landlord in every instance is a wealthy individual that can easily forego six months’ rent without suffering. Having been a landlord in the past who had to evict a tennant for non-payment I assure you that the occasion provided resulted in significant financial hardship for my family.
You also rail against the “irresponsibility” of the credit card companies. You mistake irresponsibility for rationality. The CCCs are merely making a calculated risk by extending credit to people on less than firm financial ground. Built into the interest rate that all customers pay is a factor for anticipated defaults. We all pay that default premium. You seem to be approaching this whole issue from a very emotional perspective without clearly evaluating the real issues. The real problem with this legislation is that it is going to do nothing other than raise transaction costs. The provisions that force above average earners to file using Chapter 13 will affect only 2% of all filers and account for only 2.5% of the value of discharges. Will that translate into a measurable benefit to consumers as a whole? Probably not so there’s no benefit to consumers.
Eric Soderlund,
So, if I’ve got this straight, what you find oppressive to the poor is not their eviction itself — what you find oppressive to the poor is that landlords no longer need to move the court for relief of a stay in order to evict, if the poor family was smart (or lucky) enough to file bankruptcy after the landlord got a court order allowing eviction?
Forgive me if I am not overwhelmed by the sheer oppressiveness of that change in the law.
Stephen: Good point re: increased “pro se” (i.e. assisted by someone not an attorney who dosen’t sign any papers) filings. Perhaps this will be the first crack in the monopoly of lawyers over the law?
My reasons for opposing this bankruptcy bill are a little different than those I’ve read so far. What I am opposed to is creditors giving even less attention to the credit-worthiness of their prospective debtors. The consequence of such a thing will be more indebtedness. Also, as ugly as credit card debt is, the distortions produced by increasing mortgage debt worry me more.
It seems to me that a Common Consent thread from a few months ago dealt with Utah bankruptcies. However it seemed the consensus that the reason was more for large families and health care / loss of jobs. But for those people, doesn’t the new bill already exclude them? It seems the aim was more richer people living beyond their means or purchasing large things with no intention of paying them back. One person I talked to mentioned selling their business to someone, that person declared bankruptcy, kept the business and didn’t have to pay this person much at all. Clearly situations like that are inappropriate.
I’d add to John’s comments. However it seems to me that such concerns ought be handled in a separate way. I keep thinking that the current credit situation in the US reminds me of the old Savings and Loan debacle from the late 80’s. It isn’t just credit card companies, but nearly every kind of store from Target to GM to RC Willey’s that promotes credit. Why? Because they offer a lot of money.
I agree that the Feds ought step in on this. For several reasons. First, it is a practice that targets the weakest in our society. I think the alcoholism metaphor is apt. But more importantly it has potentially huge effects on the future economic stability of the country. Economists have been warning about personal debt and personal savings for a long time now. (Not being an economist, I can’t speak to the details of why, just that they all mention it a lot) I think that it is wise economic policy to try and curtail personal debt. (Federal debt is something else they ought be curtailing – although the war provides some excuse there)
Will Bush do this? I have my doubts. I hope he will, but on some economic issues the Democrats seemed to have had stronger positions. Too bad they are all nutcases about foreign policy…
EJS objects to forcing a third party to provide shelter at the third parties expense. Cost spreading, however, has been around as long as wealth disparity–and it isn’t unusual for government to mandate it. In some instances it helps the economy to expand and we are collectively better off for it. You can debate whether or not it is a good thing in any particular instance–but only curmudgeonly libertarians think it is always bad.
Mathew,
I’m not objecting to the economics of forcing Person L to provide Person P with something. I’m not really even objecting to the morality of forcing Person L to provide Person P with something.
What I am objecting to is the idea that Person A is showing compassion for Person P by forcing Person L to provide Person P with something at no cost to Person A. (And that therefore Person B lacks compassion for Person P if he does not force Person L to provide Person P with something.)
Forcing others to do your charity for you is not something to brag about.
Eric,
Presumably true acts of compassion can transcend property rights.. It’s easy to imagine as compassionate, for example, the soldier forcing the warlord to clothe the widow. It doesn’t follow, of course, that a soldier in the same situation who acts differently isn’t compassionate–only that he has a different sense of morality.
Companies that extend credit aren’t warlords and users of credit aren’t all widows, but there certainly is a power disparity that goes unaddressed in the bargaining process. A good argument can be made that credit card companies aren’t babes in the woods–they are pretty good at assessing credit risk and know what groups of creditors are likely to default. Thanks to the miracle of pooling and diversification, they are almost always in a much better position to assess risk and prevent losses to their portfolios than an individual creditor. Credit card companies extend credit to people with higher risk profiles because it is still profitable to do so (much has been written on this very point)–so you can make the case that the losses they incur as part of such a business strategy ought to be borne by the party most able to prevent both the loss and the bear the costs associated with it.
Mathew, the way companies deal with the risk is by charging higher interest rates. ANd this is exactly what irritates many people.
So I am still trying to figure out why this bill has some people so exercised. Lawyers are held more liable, those making more than their median state income must now pay back at least some debt, and there are some changes to the eviction parts. Is that it or is there some other big bugaboo hiding away to explain all the fuss?
Mathew,
I guess I should have made it clear I was talking about the very limited example Eric Soderlund gave of how the bankruptcy bill was oppressing the poor (Person P) by allowing landlords (Person L) to avoid an automatic stay of eviction, rather than credit card companies and the bankruptcy bill in general.
Frank,
Exactly. Credit card companies can now charge pretty-much any interest rate they want which provides a mechanism whereby they can charge an interest rate in line with a customer’s particular risk profile. In modern America we have an aversion to regulating companies, especially for moral reasons. Fine. But credit cards want it both ways–they want to be able to charge higher rates but they don’t want to live with the consequences of having higher risk customers. It reminds me of the moral to the oft-told tale of the boy who picked up the snake: “You knew what I was when you picked me up.”
TEST
Uh-oh. Looks like Kaimi’s getting testy.
Mathew,
If bankruptcy laws are tightened enough that default decreases, this will cause interest rates to fall in a competitive credit market. Thus competition means the companies cannot “have it both ways” because the profits get competed away. If you think the market is not competitive, then they can keep some profits, but offhand (because I don’t know) the industry appears to have many players and so is probably reasonably competitive. Regardless, I am still waiting to hear what in this bill unduly burdens the destitute.
Mathew, the possibility that a person will declare bankruptcy is not the only risk lenders face when extending non-collateralized credit. They also run the risk that the borrower will simply stop making payments — whether or not they get a “fresh start” through bankruptcy — and be judgment proof.
When the subject has been addressed at all, this entire thread seems to be assuming that credit card debt is the leading cause of Chapter 7 filings in the US.
Hogwash.
While there is almost always credit card debt involved in your average consumer bankruptcy, it usually isn’t the cause of the bankruptcy. Rather, the credit card debt represents the last financial gasp of a household desperate to pay the bills somehow.
The number one root cause of US consumer bankruptcies is Medical Bills.
Considering how many Americans are uninsured and the skyrocketing costs of US health care, this shouldn’t really be surprising.
It was a sobering moment when my wife was pregnant with our first baby and the doctor sat us down and discussed whether we had insurance to cover the pregnancy. He looked me in the eye and said that if I didn’t have coverage “You WILL file your first bankruptcy.” Seeing the costs of the whole affair after the fact, I’d have to agree with him. There’s just no way we could have paid for that.
Your typical Chapter 7 filer is not Reagan’s “Cadillac-driving Welfare Mama” with seven credit cards that she maxed out on Doritos and a nice entertainment system. The reality is probably closer to 80 year old widow who just lost all her assets to her late husband’s medical bills and is now in your office crying because she thinks the collection agency is going to take away her cat.
Annectdotally, I’d say most American bankruptcy filers are honest folk who just got crushed by life and are usually ashamed about filing. Not all, but most.
I just don’t think it’s true that medical bills are the number one cause of Chapter 7 filing. There was a study to that effect, but if I recall they were fudging the data.
http://www.nationalreview.com/comment/heriot200502110735.asp
Sometimes medical bills are the cause, though. My uncle came close to bankruptcy recently with my aunt’s leukemia, though he was ultimately able to sell off his business and his house and meet his obligations. Our medical bills have been a real burden for us, though we’re not going bankrupt. I can see that for some people the burden would be too much. I would hope, however, that most folks with decent incomes who can’t pay their medical bills would not mind filing Chapter 13, where they would keep making some payments on their debt, even if, in the cases of the most expensive treatments, the payments were more or less symbolic.
That said, I disclaim all familiarity with the law that was just passed and its specifics. Whether the devil is in the details others will have to say.
Adam,
I have been looking at bankruptcy stuff and the National Review article is largely correct. The half of bankruptices are medical is a massive overstatement.
Apologies.
I should have been more specific. I was not citing any particular study. My comment was mostly based on personal experience from a summer internship working for a bankruptcy attorney and my studies in law school.
I should have stated that my conclusions were mostly annectdotal.
Not to worry, Seth Rogers. So far, my own views on bankruptcy are based on two anecdotal experiences I had as a summer associate. Someday we’ll teach Frank McIntyre to learn to love anecdotes.
I have a business for 13 years. Struggling threw the last several years. I have used all my credit to keep my business going including using high intrest credit cards. The good years I have made over 100,000 dollars. But after 911 things have changed I will soon loose everthing I have worked for and now the rules are changing. With a regular job not my buisness paying back 150,000 in credit card debt,loosing my house, shop, cars, and house hold belongings isnt enough. The thought of paying all this debt making 10.00 an hour as a Plumber is enough to give me thoughts of giving up on life. I have worked 60-80 hours per week neglected my health, family and friends.
All for a chance at the American Dream. This Country is built on small business. With this Law – Tell me is it worth it -TO BE SELF EMPLOYED. This is big business tramping on small business.
Bankruptcy is a fresh start with a new chance of success. This bill is worst thing I ever heard of .
They system may as well reinstate DEBTORS PRISON .
Point 1 -our Govenment forgives debt to Foriegn Countrys in the Billions monthly.
Point 2 – Spends trillons on Wars
Point 3 – Forces us to pay Taxes -Federal, State, local, energy, Sales tax, Luxury, ect.This
including as self employed a 14 percent social security
These taxes can easily add up to 50 percent of your hard earned income.
Point 5- Gives money at will to any problem world wide.
BUT WHEN A HARD WORKING AMERICAN CAN’T MAKE IT – LET HIM GO CHAPTER 13 AND REPAY IT ALL OVER THE NEXT 5 YEARS.
I AM GOING TO START SAVING DUCKTAPE AND CARDBOARD SO I BUILD A HOUSE UNDER A BRIDGE.
GOD PLEASE GIVE ME STRENGTH !
HELP ME TO CHANGE THINGS I CAN AND WISDOM TO KNOW THINGS I CAN’T CHANGE.
P.S. BUDDY CAN YOU SPARE A DIME.
I have a business for 13 years. Struggling threw the last several years. I have used all my credit to keep my business going including using high intrest credit cards. The good years I have made over 100,000 dollars. But after 911 things have changed I will soon loose everthing I have worked for and now the rules are changing. With a regular job not my buisness paying back 150,000 in credit card debt,loosing my house, shop, cars, and house hold belongings isnt enough. The thought of paying all this debt making 10.00 an hour as a Plumber is enough to give me thoughts of giving up on life. I have worked 60-80 hours per week neglected my health, family and friends.
All for a chance at the American Dream. This Country is built on small business. With this Law – Tell me is it worth it -TO BE SELF EMPLOYED. This is big business tramping on small business.
Bankruptcy is a fresh start with a new chance of success. This bill is worst thing I ever heard of .
They system may as well reinstate DEBTORS PRISON .
Point 1 -our Govenment forgives debt to Foriegn Countrys in the Billions monthly.
Point 2 – Spends trillons on Wars
Point 3 – Forces us to pay Taxes -Federal, State, local, energy, Sales tax, Luxury, ect.This
including as self employed a 14 percent social security
These taxes can easily add up to 50 percent of your hard earned income.
Point 5- Gives money at will to any problem world wide.
BUT WHEN A HARD WORKING AMERICAN CAN’T MAKE IT – LET HIM GO CHAPTER 13 AND REPAY IT ALL OVER THE NEXT 5 YEARS.
I AM GOING TO START SAVING DUCKTAPE AND CARDBOARD SO I BUILD A HOUSE UNDER A BRIDGE.
GOD PLEASE GIVE ME STRENGTH !
HELP ME TO CHANGE THINGS I CAN AND WISDOM TO KNOW THINGS I CAN’T CHANGE.
P.S. BUDDY CAN YOU SPARE A DIME.
Well, color me surprised:
Credit card rate defies bankruptcy law promises
By Kurt Johnson
“When the U.S. Congress passed a bankruptcy reform act last month, proponents of the legislation said it would lower the interest rates credit card companies charge consumers because those companies could cut their losses to non-paying borrowers.
However, earlier this month holders of some Chase Bank credit cards in the Central Texas area and elsewhere received notices that the interest rate on their outstanding loan balances would be raised to 27.5 percent.
Many local Chase Bank cardholders in a variety of financial conditions and occupations have reported receiving the same rate-increase notice, including a retiree in Taylor, a real estate agent in Cedar Park, a student in Round Rock and an office administrator in Austin.
A representative for a consumer credit counseling service in Austin said making the minimum monthly payment, roughly half the interest charge, is a recipe for disaster.
“Unfortunately, with the higher interest rate, the most some people can do is make the minimum payment, which ultimately will sink them deeper into debt until they have to file for bankruptcy,” the representative said.
Gretchen Hamil, a spokesperson for Congressman John Carter, who voted for the bankruptcy bill, said Carter wouldn’t be able to comment on Chase’s action without further study.
Jack Hirschfield, a spokesperson for Rep. Michael McCaul, who also voted for the bankruptcy bill, said most consumers shouldn’t be affected by Chase’s action “because there are over 100 credit card companies with a variety of interest rates available to consumers.”
The agreement to which Chase cardholders must consent allows Chase to adjust interest rates on its cards whenever it chooses to do so.
According to the American Bankers Association, American households pay about $550 million per year in higher retail prices and higher interest rates because retailers and lenders routinely get stuck with bad debt in bankruptcy court. Those savings for credit card companies were cited by proponents of the bankruptcy bill as proof that credit card interest would go down.
Tony Plath, an economist at the University of North Carolina at Charlotte, said interest rates likely won’t fall for the average consumer.
Under the current law – prior to implementation of the new bankruptcy act – consumers who carry large credit card balances between $20,000 and $40,000 are especially risky to banks because they can easily file for bankruptcy, Plath said. However, under the new law just passed, high-income consumers will face stricter bankruptcy-filing requirements. That means banks stand to reap similar profits from these consumers but with less risk, so interest rates may be lowered for high-income groups.
But for middle-income credit card borrowers, Plath said, credit card companies have to take their profits where they can, which means implementing higher interest rates and stiffer penalties for paying late and exceeding borrowing limits.
Rep. James Sensenbrenner, a Wisconsin Republican who co-sponsored the bill and chairs the House Judiciary Committee, told The Financial Times in March that “the responsible thing for credit-card issuers to do would be to reduce interest rates because there is less risk.”
Travis Plunkett, legislative director of Consumer Federation of America, a Washington consumer group, said the premise that credit will become cheaper under bankruptcy reform is “a lie.”
“Most people who seek bankruptcy protection are driven there by serious illness, divorce or a job loss, so it’s doubtful that lenders will recover significantly more under the new law. There’s no money to go around and you can’t get blood from a stone,” Plunkett said.
In an interview for a publication of AARP, Elizabeth Warren, a Harvard law professor who coordinated a study involving bankruptcies involving medical care, said middle income families are especially vulnerable under the new bankruptcy law because it’s “nearly impossible for them to survive financially” if they have to face a serious illness involving long-term care.”
From the Taylor Daily Press