# The New Bancruptcy Law **URL:** \ **Category:** Great Debates\ **Created:** [March 16, 2001, 8:23pm UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285 "2001-03-16T20:23:13Z")\ **Posts on this page:** 12\ **Page:** 2
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [March 17, 2001, 10:21pm UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285/21 "2001-03-17T22:21:40Z")
> [@](#): > > \*Originally posted by spoke- \*If the banks want to restrict the access of credit card holders to the Bankruptcy courts, then I think an appropriate quid pro quo would be a federal cap on interest rates. A federal cap on interest rates which had any effect would likely curb legal loans to high-risk borrowers. Some of them would stop borrowing. Others would turn to the casual credit sector, eg loan sharks and pawn shops. Furthermore, I believe that credit card companies already face some sort of interest rate cap, though I may be mistaken. Still, I agree with your timeline and would add that credit card companies have vastly increased their lobbying efforts in Washington in recent years. For example, as pointed out by [Arianna Huffington](http://www.salon.com/politics/feature/2001/03/06/bankruptcy/index.html) , MBNA’s political contributions increased from some $740,000 in 1996 to a cool 3.5 million during the 2000 election. ---
**Author:** ![IzzyR](https://avatars.discourse-cdn.com/v4/letter/i/2acd7d/32.png) [@IzzyR](https://boards.straightdope.com/u/IzzyR)\ **Post date:** [March 18, 2001, 2:08am UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285/22 "2001-03-18T02:08:09Z")
**Attrayant** > [@](#): > > not everybody who files for bankruptcy does so because they burried themselves in debt. Many choose it only as a last resort after being laid off from work. Manageable credit card bills can become seriously unmanageable if you no longer have a job. I don’t see that the fact that some people declare bankruptcy due to unforseen circumstances necessarily means that bankruptcy laws deserve to be lax. Firstly, anticipating unforseen circumstances is part of being responsible. But beyond this, even if someone took reasonable care and was victimized it does not follow that other people should be made to bear the brunt of his tragedy. > [@](#): > > This is why I thought the $125K limit was a good idea and didn’t know that repubs wanted to eliminate even that much of a cushion. As **bashere** pointed out, the Republicans are trying to keep an unlimited house exemption (e.g. Burt Reynolds $2.5 million). A sop to their rich buddies possibly, but as **doreen** has noted, 125K does not buy a whole lot of real estate in many parts of the country. My position is too bad - live cheaply. In fact, I personally would support eliminating the house exemption altogether. Many fine people rent houses or apartments. Go do this before you avoid paying back money that you owe. But I can see the point of having some small exemption. **redtail23** I absolutely agree with you that corporations should not be treated any better than individuals. I am not aware that this is the case, however. According to another article in the Friday Times, the bill would have an affect on businesses as well. > [@](#): > > Not to mention the child-support thing. Ain’t no way, no how, that a corporation should get paid before child support gets paid. Depriving children so that some corp can make its quarterly profit is just flat wrong. The kids didn’t screw up; their parents did. Disagree completely. Suppose there was an intact family and they had debts. Would you say to cancel them so that the kids’ standard of living shouldn’t drop along with the rest of the family? I don’t think so. There’s no difference between these kids other than the fact that they happen to be children of divorced parents. What I do agree with is that the child support (and alimony) should not be completely cut off in favor of other debts. But the rationale for this is not that kids cannot be allowed to suffer any consequences for their parents’ actions, as you seem to be suggesting. Rather, just as a person or family filing for bancruptcy should be allowed by the courts to shield enough to live a basic lifestyle, so too a child or ex-spouse dependent on this person should also be allowed to continue to live a basic lifestyle before other creditors get paid. But based on this rationale, there is no reason to allow other debts to be wiped out sompletely through bankruptcy while child support and alimony go on as if nothing had happened. What should be done to accomodate this is that the judge should consider, in ruling on the bankruptcy, that he must leave enough money over for child support and alimony to be paid at a basic level. > [@](#): > > So it’s OK for credit card companies to avoid the consequences of their own actions? These companies provide unsecured credit. No one forces them to do so. They run credit checks, verify income, so on and et cetera. No one forces them to hand out cards. They set their own rules (with a few exceptions governed by Federal law), their own interest rates, their own payment requirements, etc. etc. etc. No one forces them to do any of those things. If they are having a problem with defaults, perhaps they should take “responsibility to make the right decisions themselves”? This sounds like blaming the victim to me. Who forced you to walk into that neighborhood wearing fancy jewlery? Hey, if a company is foolish and irresponsible and goes bankrupt itself due to over-aggressive lending practices, then that bankruptcy is a product of the company’s irresponsibility. But I don’t see having laws around to allow people to not pay back money that they owe simply because “you should have known that I might not pay back” **Zumba The Cat** > [@](#): > > I don’t believe that anyone should commit violence against an abortion clinic. But, what is so special about that particular kind of violence? Why can you get out of other legal judgements and not that one? It just doesn’t make any sense to me. > > If you forced to pay judgements for committing violence against abortion clinics then you should be forced to pay judgements for other violent acts. If you can declare bankruptcy and avoid the judgement that I don’t see why abortion clinics are special. It is for this reason that I am inclined to oppose it. But I think the reason for this amendment being inserted is because I think it is a specific strategy of many anti-abortion extremists to make themselves “lawsuit proof” by using the bancruptcy laws. So there is some rationale for distinguishing abortion clinics. (OTOH, I am not sure if all these people sued for violence against abortion clinics are really doing anything than standing too close etc. I may be wrong about this). **tracer** > [@](#): > > If the person doesn’t have sufficient assets to pay off the debts under the court-supervised plan, what happens to him? Will he go to jail? If so, this sounds ominously like the “debtors prisons” that the Bankruptcy laws were originally crafted to eliminate. What could possibly give you that idea? A court supervised plan would take into account what amount of debt the person’s assets were sufficent for, and eliminate your scenario. (The only people who get put in prison for debt these days are “deadbeat dads”, and I am under the impression that this is under a contemt of court justification). **flowbark** > [@](#): > > On the credit card issue, my take is that the companies were being overly-aggressive in extending credit, and they want the Feds to solve their problems for them by changing the rules of the game. ( **Spoke-** also made this point). I think the bankruptcy rules may have loosened up in recent years. That or people have started taking advantage of them alot more. (I know they are heavily promoted by lawyers). Either way, there has been a shift in the climate in recent years in the direction of more bankruptcies, and the bankers are trying to drag it back to the old situation. > [@](#): > > I suspect that current changes in the law will cause them to redouble their marketing efforts I suspect (or at least hope) that current changes in the law will cause people to be more careful about going into debt, once they hear some more bankruptcy scare stories, instead of thinking that worst come to worst you can always declare bakruptcy. (There’s a lawyer in my area adverising “declare bankruptcy before it’s too late…”). ---
**Author:** ![Spoke](https://avatars.discourse-cdn.com/v4/letter/s/a88e57/32.png) [@Spoke](https://boards.straightdope.com/u/Spoke)\ **Post date:** [March 18, 2001, 5:39pm UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285/23 "2001-03-18T17:39:23Z")
**IzzyR** wrote: > [@](#): > > I think the bankruptcy rules may have loosened up in recent years. That or people have started taking advantage of them alot more. (I know they are heavily promoted by lawyers). Either way, there has been a shift in the climate in recent years in the direction of more bankruptcies, and the bankers are trying to drag it back to the old situation. Spare me. If anything, it is more difficult to discharge debts in bankruptcy now than it was, say, 20 years ago. Banks are not trying to drag anything back to some imagined “old situation.” They are trying to create a new situation, more favorable to their interests and less favorable to consumers. **flowbark** wrote: > [@](#): > > A federal cap on interest rates which had any effect would likely curb legal loans to high-risk borrowers. The problem is that the banks are trying to have it both ways. On the one hand, they are saying, “We have to charge high interest rates because a certain percentage of our card-holders go into bankruptcy, and we have to make up those losses.” On the other hand, they are working very hard to restrict those bankruptcy options. Well, if bankruptcy is not going to be a viable option for eliminating credit card debt, then the banks no longer have a justification for the outrageous interest rates, right? I say leave the system alone. If the banks want to stop losing money in bankruptcy court, they need to stop making poor lending decisions. Ah, but they won’t do that because it’s more profitable to go ahead and make the high-risk loans, and then get Uncle Sam to help them shut down bankruptcy options. On the whole, I think loan sharks are in a morally superior position to these parasites. ---
**Author:** ![barker](https://avatars.discourse-cdn.com/v4/letter/b/919ad9/32.png) [@barker](https://boards.straightdope.com/u/barker)\ **Post date:** [March 18, 2001, 7:23pm UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285/24 "2001-03-18T19:23:35Z")
**spoke-** wrote: > [@](#): > > Spare me. If anything, it is more difficult to discharge debts in bankruptcy now than it was, say, 20 years ago. Can **spoke-** or anyone provide any support for this statement. Based on my personal experience it seems incorrect. I’d be interested to see if anyone has any evidence that points to discharge of debt through bankruptcy being more difficult now than it was 20 years ago. ---
**Author:** ![Spoke](https://avatars.discourse-cdn.com/v4/letter/s/a88e57/32.png) [@Spoke](https://boards.straightdope.com/u/Spoke)\ **Post date:** [March 18, 2001, 7:57pm UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285/25 "2001-03-18T19:57:10Z")
**barker** , if I’m not prying, what personal experience of yours makes my statement seem incorrect? ---
**Author:** ![barker](https://avatars.discourse-cdn.com/v4/letter/b/919ad9/32.png) [@barker](https://boards.straightdope.com/u/barker)\ **Post date:** [March 18, 2001, 8:27pm UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285/26 "2001-03-18T20:27:08Z")
Twenty Years in the Banking Industry. Much of that working with risk management. My experiences may differ from the norm as I have always worked with smaller community Banks. I do follow Bankruptcy filings on a national level. Going back to 1980, these are totals for Chapter 7 filings: 1980 – 213,983 1981 – 226,595 1982 – 212,657 1983 – 196,205 1984 – 195,826 1985 – 237,637 1986 – 324,073 1987 – 362,605 1988 – 399,128 1989 – 439,127 1990 – 506,940 1991 – 617,359 1992 – 643,538 1993 – 568,415 1994 – 537,551 1995 – 597,048 1996 – 779,128 1997 – 956,607 1998 – 1,007,471 1999 – 909,719 2000 – 838,576 Chapter 7 filings run pretty consistently as about 70% of total non business filings. The growth in these filings, on the surface at least, do not indicate a an increasing difficulty in the discharge of debt through bankruptcy. ---
**Author:** ![Spoke](https://avatars.discourse-cdn.com/v4/letter/s/a88e57/32.png) [@Spoke](https://boards.straightdope.com/u/Spoke)\ **Post date:** [March 18, 2001, 8:46pm UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285/27 "2001-03-18T20:46:16Z")
Those figures, I suspect, reflect a change in the amount of debt carried by the average citizen over the past twenty years, which reflects the fast-and-loose manner in which banks have given consumers access to credit cards during the same time frame. What it most certainly **does not** reflect is any change in the bankruptcy laws making it easier to file for Chapter 7 bankruptcy. (Which was the implicit assumption of **IzzyR**.) In fact, the last major bankruptcy legislation was the Bankruptcy Reform Act of 1994, one express purpose of which was to make it more difficult to file Chapter 7 (liquidation) bankruptcies, while making Chapter 13 (repayment plan) bankruptcies a more attractive option. See the overview of bankruptcy history [here](http://www.bankruptcydata.com/Ch11History.htm) If bankruptcies have increased over the past twenty years, it is because banks are making poor lending decisions. Discharge in bankruptcy has only become more difficult, not less difficult, during that time span. ---
**Author:** ![Spoke](https://avatars.discourse-cdn.com/v4/letter/s/a88e57/32.png) [@Spoke](https://boards.straightdope.com/u/Spoke)\ **Post date:** [March 18, 2001, 8:51pm UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285/28 "2001-03-18T20:51:07Z")
Here’s a [nice article](http://www.abiworld.org/warrenlink.html) from the Chicago Tribune on this problem. My favorite line from the article: > [@](#): > > If there are too many bankruptcies in America, this state of affairs could only exist because too much money is being borrowed. And that can only mean that too much money is being lent. ---
**Author:** ![IzzyR](https://avatars.discourse-cdn.com/v4/letter/i/2acd7d/32.png) [@IzzyR](https://boards.straightdope.com/u/IzzyR)\ **Post date:** [March 19, 2001, 12:52am UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285/29 "2001-03-19T00:52:23Z")
**spoke-** The site that you link to does say that the > [@](#): > > On October 22, 1994, the Bankruptcy Reform Act of 1994 (Public Law 103-394, October 22, 1994), the most comprehensive piece of bankruptcy legislation since the 1978 Act, was signed into law by President Clinton. The 1994 Act contains many provisions, for both business and consumer bankruptcy, including: provisions to expedite bankruptcy proceedings; **provisions to encourage individual debtors to use Chapter 13 to reschedule their debts rather than use Chapter 7 to liquidate** as you say. OTOH, it also says that > [@](#): > > The Bankruptcy Reform Act of 1978 was passed in 1978 and took effect on October 1, 1979. This act substantially revamped bankruptcy practices. A strong business reorganization Chapter was created, Chapter 11. (This replaced the old Chapters X, XI and XII that had been created by the 1898 Act and amended by the Chandler Act.) Similarly, a more powerful personal bankruptcy, Chapter 13, replaced the old Chapter XIII. **In general, the Reform Act of 1978 made it easier for both businesses and individuals to file a bankruptcy and to reorganize** _(emphasis added)_ I don’t know which was more powerful, the 1978 act or the 1994 one. Unless you provide specific details, it is unclear whether the 1994 act completely counteracted the 1978 one or left the impact of old act still in place. In any event, I did not state definitively that the increase is due to laws. What I said was > [@](#): > > I think the bankruptcy rules may have loosened up in recent years. That or people have started taking advantage of them alot more. (I know they are heavily promoted by lawyers). Either way, there has been a shift in the climate in recent years in the direction of more bankruptcies, and the bankers are trying to drag it back to the old situation. Your subsequent statement that > [@](#): > > What it most certainly does not reflect is any change in the bankruptcy laws making it easier to file for Chapter 7 bankruptcy. (Which was the implicit assumption of IzzyR.) is baseless. My point is that bankers would like to bring the levels of bankruptcies back to levels that they had historically been at. BTW, it would appear, from doing a little further reading on the subject, that the main impact of the new law on individuals is to force more bankruptcies into Chapter 13 over Chapter 7 (I guess, continuing the direction of the 1994 Act). ---
**Author:** ![barker](https://avatars.discourse-cdn.com/v4/letter/b/919ad9/32.png) [@barker](https://boards.straightdope.com/u/barker)\ **Post date:** [March 19, 2001, 12:55am UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285/30 "2001-03-19T00:55:22Z")
> [@](#): > > \*Originally posted by spoke- \* > Those figures, I suspect, reflect a change in the amount of debt carried by the average citizen over the past twenty years, which reflects the fast-and-loose manner in which banks have given consumers access to credit cards during the same time frame. And I suspect they have to do with the death of Monarch butterflys in Mexico. At any point are you going to back up assertions that you make in this discussion? > [@](#): > > What it most certainly **does not** reflect is any change in the bankruptcy laws making it easier to file for Chapter 7 bankruptcy. (Which was the implicit assumption of **IzzyR**.) My response was to your statement that it was now more difficult to discharge debt. While **IzzyR** referenced a possible loosening of bankruptcy law (which I agree hasn’t happened) he did leave the door open to the increase coming from a greater number of people simply taking advantage of the laws that exist. > [@](#): > > In fact, the last major bankruptcy legislation was the Bankruptcy Reform Act of 1994, one express purpose of which was to make it more difficult to file Chapter 7 (liquidation) bankruptcies, while making Chapter 13 (repayment plan) bankruptcies a more attractive option. In Fact, you are wrong. There is nothing in the Bankruptcy Reform Act of 1994 that makes it more difficult to file Chapter 7. There are incentives related to curing mortgage defaults that can make Chapter 13 more attractive. Since the passage of the 1994 reform act there has been no change in the ratio of those filing for Chapter 7 as opposed to 13. > [@](#): > > If bankruptcies have increased over the past twenty years, it is because banks are making poor lending decisions. Discharge in bankruptcy has only become more difficult, not less difficult, during that time span. Continuing to repeat an assertion does not make it true. ---
**Author:** ![Spoke](https://avatars.discourse-cdn.com/v4/letter/s/a88e57/32.png) [@Spoke](https://boards.straightdope.com/u/Spoke)\ **Post date:** [March 19, 2001, 2:55pm UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285/31 "2001-03-19T14:55:15Z")
If you don’t believe my statement that increased bankruptcies are the result of banks extending credit too freely, would you believe Alan Greenspan? > [@](#): > > Children, dogs, cats and moose are getting credit cards… (From Greenspan’s February, 2000 Senate testimony.) ---
**Author:** ![barker](https://avatars.discourse-cdn.com/v4/letter/b/919ad9/32.png) [@barker](https://boards.straightdope.com/u/barker)\ **Post date:** [March 19, 2001, 3:44pm UTC](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285/32 "2001-03-19T15:44:05Z")
I’ve never seen a bankruptcy petition from a cat, dog or moose. Children are generally not liable for debt they incur under credit agreements. So I would say that issuing credit cards to children, dogs, cats or moose have not increased the bankruptcy rate. Greenspan may be percieved as some to speak as an authority on fund flows and interest rate management, but he has very little experience in credit risk management. [Previous page](https://boards.straightdope.com/t/the-new-bancruptcy-law/58285.md?page=1)