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Bankruptcy Change
Bankruptcy Change
Part 3 of NEW FEDERAL BANKRUPTCY LAW AND REFORM: DID CONGRESS MEAN TO SHUT DOWN BANKRUPTCY?
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The problem with this view of the representative debtor is that it is as wrong as it could be. It is not the product of any painstaking study after statistical scientists have digested thousands of exhaustive questionnaires in an exit poll after the bankruptcy discharge. No, the bankers had created a bête noir out of their own prejudices and resentments--a creature that deserved no sympathy and was suitable only as the enemy coddled by the bankruptcy law, which operated diametrically opposed to the values that had made and preserved American progress. This patchwork impression of the bankruptcy debtor was the unifying concept of the BAPCPA through its many years before Congress until final passage in April 2005. There is, however, an alternative bankruptcy debtor-one based in fact. A study published in 2005 in the journal Health Affairs found that at least half of all bankruptcy filers are forced to file bankruptcy due to medical bills they cannot afford. Rather than reforming the bankruptcy code, maybe Congress should have considered healthcare reform as a means to reduce bankruptcy filings. It is not easy to miss the punitive spirit behind the new bankruptcy law or the contempt and ill will toward bankruptcy debtors, debtors’ attorneys and even bankruptcy judges who, after all, allowed such a corrupt and unfair system to get away with robbing the “goods guys” of their operating capital and weakening the country. Debtors are seen as at best, careless consumers of other people’s money, addicted to luxuries that they cannot afford but will not defer, and at worst, criminal manipulators of a lenient bankruptcy system that encourages and pardons their mindless prodigality, and ensures a fresh start so that they can rape society again. While this picture may be true of some bankruptcy filers, the vast majority of filers are well intentioned, honorable people, whom life circumstances, such as illness or job loss, forced to find relief from creditors in bankruptcy.
To many professional and lay observers at the center of the insolvency world, the final word in America on American bankruptcy comes from Harvard professor and student of all things commercial, Elizabeth Warren. It is surprising to read of a subject so prosaic as bankruptcy as a metaphor for life itself with all of the great issues of life –success and adulation, rejection and death, redemption and rebirth. Her fascination with bankruptcy has driven her deep intellect to become bankruptcy’s preeminent student and philosopher. The latest study of the people and families forced into filing bankruptcy conducted by Professor Warren in 2004 preparatory to her latest scholarly offering, “THE TWO INCOME TRAP: WHY MIDDLE CLASS MOTHERS AND FATHERS ARE GOING BROKE.” The following conclusion is drawn from her study of 2,000 families whose adults had filed bankruptcy in 2003-2004:
“The families who file for bankruptcy file mostly in the aftermath of job problems. They keep making those minimum monthly payments, except for two out of every three [who have] had an extended period of unemployment, or they've lost their small businesses, and they just can't make it anymore.
About half of the families who file for bankruptcy have serious medical problems. Sometimes it is... Mom or Dad; sometimes a child; sometimes an elderly parent that they've been trying to support. And for about 20 percent of the families in bankruptcy, it is divorce; it is ... family breakups that land them in the bankruptcy courts... for many of them, it's two out of those three, or even for a lot of them, three
out of three ... that are just more catastrophic blows than they can take, and that's how they end up in bankruptcy.”
She makes clear that the vast majority of bankruptcy filers do not file bankruptcy simply to take advantage of the system. No, the vast majority are working Americans who, for some unforeseen reason, are no longer able to meet their financial obligations. Most of these people want desperately to not file bankruptcy, but many are forced to do so. Unfortunately, the new bankruptcy change has made filing impossible for many of them.
The bankruptcy change specifically addressed the horror stories circulating which within lending circles, and to its proponents the law is a long overdue comeuppance for the financial profligate. However, the proponents of the change failed to carefully study the real reasons that most people seek bankruptcy protection, and therefore they have revamped a system which was working relatively well, if the banks’ profits are any indicator. The bottom line is that for many Americans in financial straits, bankruptcy is no longer an option. Thankfully, there are alternatives, such as debt settlement, available for these consumers. These alternatives, while not as powerful a tool as bankruptcy, should still offer relief to these families.
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