So I’m living in Japan right now and I missed this bankruptcy bill thing. Basically, there are a lot of restrictions going on Chapter 7 filings, and more people will be forced into Chapter 11 and Chapter 13. I’ve heard the standard Calvinist view that people shouldn’t be squirming out of their debts, and that Chapter 11/13 will allow them to suffer for their crimes and get on with their credit life sooner. I’ve also heard the NPR view (Planet Earth explodes, women and minorities hardest hit) with the standard stuff about too many loopholes for the rich, not enough consideration for medical problems, too few credits for milk for blind puppies, etc.
So what’s the deal? In light of a looming credit crunch, is this bill good for America or not?
The lending industry, and their spokes-congressmen, use the argument that people shouldn’t be allowed to shirk their responsibilities by bankruptcy. They paint the bankrupt person as a wild spendthrift who madly throws cash around, way over his income, then goes bankrupt to thumb his nose at the good folks who kindly lent him all that dough (and then jacked up the interest rates.)
In reality, half of the bankruptcies in the US are the result of massive, sudden medical bills, not profligate spending.
The credit card industry already had most of their dreams come true, and they really don’t need another way to get money from financially ruined folks. For example, congress gave them the right to dodge state usury laws by locating in states where usury (brutally high interest rates) is legal. Congress gave them the right to increase interest rates in mid-loan. (You signed up for a card at 8%? Surprise! Now it’s 21%.)
The card companies throw cards at everybody. I’m sure most of us know somebody who is barely paying her bills, yet she is mailed credit card offers several times a week. College students, already up to their necks in college loans, are buried in card offers. Despite all this risky lending, the card companies moan about being abused by loan defaults.
Let’s make it more equitable. If the average guy can’t use bankruptcy anymore, then neither should companies. No more bailouts, no more “reorganizing” to avoid debt. etc. Then let the games begin.
SteveG1 makes a good point. One reason why this bill is bad is that it hurts the middle-class dude. Big corps and multimillionaires can still use Chtr 11 and 13 as tools and bargaining chips.
In general, I agree that individuals should take responsibility for their spending. Sadly, the Credit Card industry exacerbates the risk of bankruptcy (except for the extraordinary medical expenses scenario) by making incredibly bad loans. The lack of truth in lending regarding what paying on the the minimums really means is a big part of the problem. People are granted credit based upon them having enough income to only cover the monthly minimums. If one pays only the minimums, it takes years to pay off a balance. The cumulative interest dwarfs the cost of the item originally purchased. This is not adequately explained or highlighted in application documents.
I would rather see the CC companies be able to only recover the original amount borrowed - they should not be able to collect compounded interest and late charges when they have irresponsible lending practices.
Wait a minute, I don’t think this is true. I thought SB256 made it more likely that individuals would have to pursue the same types of bankruptcy as corporation. Many individuals go for Chapter 7 (complete debt forgiveness) whereas corps have to go for Chapter 11 or 13 (court-ordered financial oversight and restructuring). Individuals will now have to go for chapter 11 and 13 if I understand correctly.
It seems to me that if consumers are opting for a lifestyle that depends on revolving debt, we can’t just have everyone asking for complete forgiveness of loans when they get in over their heads. I don’t see why individuals shouldn’t be required to submit to court-ordered restructuring and financial management just like companies do.
After reading the 3-page trainwreck from a couple of weeks ago, I have learned everything about this bill that can be gained from a discussion board. Sorry for resurrecting the zombie. :smack:
Oh, I didn’t mean my post to sound like I was chastising you for bringing up the subject again. Just wanted to provide an informative link to the other thread. You missed the other thread, and I figure other dopers might’ve as well, so I was just directing them there for some takes on the subject.
Personally, I think this horse is still twitching. The subject still merits debate as long as the bill is out there. You make a good point in your OP about the looming credit crunch (as a lot of Americans max out their credit credit cards and tap out their home equity). I see this bill as an effort by the credit card industry to gird itself against a tidal wave of bankruptcies which may be coming down the pike. A lot of Americans don’t know they’re getting screwed by this bill, and won’t know it until they find themselves on the rocks financially.
Recently, there was a PBS Frontline documentary on the credit card industry. It seems the Supreme Court ruled that states could not regulate the rates on loans originating from out of state even if the borrower was in state. This encouraged South Dakota to lift the usury laws to lure Citibank and jobs to the state.
Congress did not do anything to create the situation. They could probably intervene but that is a different matter. The linked article does mention an attempt by the Senate to limit the rates to 14% in 1991.
All in all, it was a good show and the website is fairly informative of the history of credit cards.
Alright, so I tried not to dredge up the zombie. But now that people are adding comments, I feel compelled to add a couple of thoughts of my own:
People are making out as though this bill outlaws bankruptcy. That isn’t the case. The same people, irresponsible or just unfortunate, who previously used Chapter 7 most likely will now have to file Chapter 11 and Chapter 13. The option of bankruptcy is still there; it is just likely to be less abused.
There is nothing wrong with the concept of bankruptcy. As has been mentioned, wealth is created through risk-taking, and bankruptcy increases that risk-taking. I would venture to say that bankruptcy is kind of a social contract that allows innovators to try new ventures with the understanding that the risk is limited to some extent.
As the amelioration of personal risk by bankruptcy is a social contract, so is the assumption that one will faithfully discharge one’s own financial contracts. Taking on debt is a financial contract. The honoring of financial contracts in itself is one of the social contracts upon which the economy rests. If financial contracts need not be honored when they are inconvenient, then upon what foundation can we base our economy? Some like to pretend as though bankruptcy is just “cutting the little guy a break” because had “bad luck.” but in a consumer-debt driven economy, this is the same as asking Wal-Mart to hand out lawnmowers for free just to “give the little guy a break.” Laudable to be sure, but not a good way to stay in business and not really something you can base an economy on. Do we not all have some sort of bad luck, to have been born humans who have bodies that require feeding, that age ungracefully, and inconveniently die no matter what measures are applied?
If lending practices nowadays are considered detrimental/predatory*, then Chapter 7 can be considered detrimental/amensal*. Or possibly even (to coin a term) dysmensal*. The consumer perceives a momentary benefit from the relief of debt, but eventually comes to recognize that he has forfeited his right to use credit for 10 years. That is a long time to go without a credit card, a car loan, a home loan, etc. Once again the borrower has accepted something that looks like a quick fix, but has long-term detrimental effects. The reason I say this is amensal is because the debtor suffers and nobody gains. In fact it may even be dysmensal because the debtor suffers from a lack of credit and lenders suffer from losing a possible borrower. If borrowers need to be protected from predatory lending practices because they are a quick fix with long-term deleterious effects, perhaps borrowers likewise need to be protected from the seduction of Chapter 7 bankrupcy.
Based on the above points, I think the bankruptcy bill is a good thing because it will encourage the right kinds of risks, slow the erosion of attitudes toward personal contracts, and decrease the temptation of consumers to accept yet another quick fix that really is not in their best interests.
These are terms used in biology or ecology used to characterize relationships between organisms. The normal use of the terms can be found here . My coinage of the term “dysmensal” is intended to describe a relationship where all parties are harmed. It is a non-standard biological term because this type of relationship is not believed to be existing or even possible in nature. However, in human society I believe them to be common to the point of being profligate.
No, it’s a LOT worse than that. Big dudes can use something called a “Personal Asset Trust” which allows them to protect ALL of their income and possesisons from creditors in the event of lawsuits/bankruptcy. The ONLY people who’ll be affected by this bankruptcy law will be the poor and the middle class, who can’t afford the thousands of dollars it takes to set up such a trust.
This is strictly a “screw the middle class and the poor” law. But Americans deserve it – they elected Republicans. I’m really looking forward to mocking broke Republicans from the middle class in the next few years when the credit card companies screw the hell out of them.
Uh huh. So tell me, O spokesman for the downtrodden, what precisely should Congress have done about asset trusts? In doing it, should they have distinguished between foreign and state trusts? How does one make such a trust? How often are they seen? Do bankruptcy courts already have abilities to examine or break the trusts? If so, under what circumstances?
So tell me, O spokesman for the rich and greedy, why were lenders not required to tighten up their standards for extending credit, to stop charging usurious rates of interest, to quit using deceptive and dishonest marketing strategies, and to quit writing contracts in such a manner that lenders can arbitrarily change the terms virtually at will? If we do indeed have a problem with too many people filing for bankruptcy, why do you so blithely assume that it must be only the borrowers who are at fault?
Everyone should keep in mind that credit cards are *signature loans[/i. If you have to default they can’t do much but ruin your credit rating. They can’t come after your home or car.
I don’t know about you, but to me the concept of “contract” means a binding agreement between two parties the terms of which cannot be arbitrarily changed by either party. When lenders can arbitrarily make legally binding changes in interest rates, fines and fees, due dates and so forth, that is not a mere “financial contract.” That is more like a writ of indenture. I can’t help wondering how much longer it will be before we bring back the sacred institution of debtor’s prison.
Some years ago I had to put some rather expensive car repairs on a credit card. It was a very good credit card with very reasonable interest, and I was confident I could pay off the balance in less than a year. Five months later, the debt was about half paid off. But six months later, the bank that issued the original card was bought out by another bank. The second bank decided they didn’t want me for a customer, and sold my account to a third bank. The third bank immediately jacked up my interest rate from less than 6% to more than 21%–and the monthly amount I’d previously been paying, which was steadily paying down the balance, suddenly was just barely enough to pay the monthly interest.
If the financial industry is going to things like that to me, it’s going to take more than a lot of pretty talk about the sanctity of contracts to convince me I’m not getting screwed.
Well, if they really want to get nasty about it, they can take you to court and garnish your wages. This can be done even for unsecured signature loans.
Because credit cards are issued by banks. And because all of those things about banks are regulated by the states, not the federal government. And because the states, Democratic-controlled states and Republican-controlled states, scream bloody murder when Congress tries to fiddle with them. Which you’d know if you’d done a scintilla of research into the subject before spouting off.
But no. Once again people in this forum insist on spreading ignorance rather than fighting it.
The simple fact is that you possess too much ignorance on this subject to have an intelligent opinion about it, let alone to try to persuade others.