The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (s.256) is starting to look like a legislative winner in this session of Congress. After almost ten years of lobbying, and millions of dollars in campaign contributions on both sides of the aisle, this year's version of the bill will put a smile on the faces of the power brokers in the financial services industry.
WINNERS: Large credit card companies, MBNA, Ctitigroup, J.P. Morgan Chase, Bank of America, American Express, owners of shopping malls.
LOSERS: Small businesses, elderly, families with children.
This bill is creditor drafted and contains many pitfalls for debtors, according to Ohio bankruptcy attorney Michael M. Schmieg:
"The proposed legislation applies a new standard for determining whether people filing for bankruptcy should be forced to repay debts under court-approved reorganization plans rather than having them dissolved. If a debtor is found to have sufficient income to repay at least 25 percent of the debt over five years or has at least the median income for his or her state, a reorganization plan generally would be required or if he has $100 or more per month in disposable income, the Chapter 13 is indicated.
"Under the current system, it is usually left to a bankruptcy judge or debtors’ attorney to decide whether someone qualifies for dissolution of debts or should be forced to repay under a reorganization plan.
"Many have concerns about the proposed bill. The decline in the economy, which began in the spring of 2000, continued until recently, but employment has not yet fully rebounded. Many in Congress believe that a change in the bankruptcy process could make things even worse. On an editorial note, I agree and believe that this bill in any form at any time is a bad idea."
A bipartisan group of law professors agree with Schmieg:
"It is a stark fact that the bankruptcy filing rate has slightly more than doubled during the last decade, and that last year approximately 1.6 million households filed for bankruptcy. The bill’s sponsors view this increase as a product of abuse of bankruptcy by people who would otherwise be in a position to pay their debts. Bankruptcy, the bill’s sponsor says, has become a system 'where deadbeats can get out of paying their debt scott-free while honest Americans who play by the rules have to foot the bill.'
"We disagree. The bankruptcy filing rate is a symptom. It is not the disease. Some people do abuse the bankruptcy system, but the overwhelming majority of people in bankruptcy are in financial distress as a result of job loss, medical expense, divorce, or a combination of those causes...Our concern is with the provisions addressing 'bankruptcy abuse.' These provisions are so wrongheaded and flawed that they make the bill as a whole unsupportable."
BANKRUPTCY 'REFORM' FACTOIDS
MBNA, the largest credit card company in the US and a strong supporter of the bill, is one of the largest corporate contributors to George W. Bush's presidential campaign. It does not discriminate in the political influence peddlers mart, however. In 1998, MBNA gave Democratic Congressman James Moran a $447,000 debt-consolidation loan. Days later he became a lead sponsor in that year's version of a bankruptcy "reform bill
This bankruptcy "reform bill" will do ABSOLUTELY NOTHING to protect the public from the likes of future WorldCom, Enron, and Global Crossings scale bankruptcy debacles. It does not insure that when a large company goes bankrupt that employees, shareholders, and small businesses get back the money they have lost.
The fastest growing group of bankruptcy files is older Americans driven to bankruptcy by medical debts. (Over half these American HAVE medical insurance.)
The same credit card lenders have become more aggressive in their marketing and a huge market in subprime lending has evolved. This market has generated huge profits for the money lenders, despite the higher default rates associated with "risky" loan products.
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