A few things trouble me about the recent proposals to make bankruptcy harder to declare:
They’re changing the rules of the game mid-stream. In other words, when the credit card companies extend credit to people (many of whom are poor credit risks), the companies know full well that a certain percentage of these people will get in over their heads, default, and file bankruptcy. The companies do it anyway, because they know that their exorbitant interest rates will make up for the defaults. Why hand these companies a windfall?
More importantly, I’m concerned about unintended consequences. Apparently, the bankruptcy reform bills have a 180 day lag before they go into effect. If the bills are enacted, what happens? You got it – a 6 month stampede to the bankruptcy courthouse. How big of an effect will this have on the economy? Who knows, but this may not be the best time to try such an experiment.
I’m not certain that simple answers are always the best ones, but I think the answer to question 1 is that lenders have a lobby, while consumers swamped with debt don’t. lucwarm, I’d even go one further to say that it is disturbing that some lenders try to find debtors on the brink of bankruptcy, counting on their desire to get by. These people will make their minimum payments, just barely. This can make them steady customers. Its disturbing that the credit industry can risk push such people over the edge, then cruch them once they try to file bankruptcy.
I’m in favor of it from the standpoint that people are abusing the system. Racking up thousands of dollars of debt, and then going. “Whoops! Sorry, I can’t pay.” just bugs me. Being held accountable financially is one way to put an end to that type of craziness.
Credit Card companies are sub-criminal (some of them) but it takes two to tango. People need to learn money doesn’t grow on trees. If the economy goes truly south, it should be interesting to hear the howls of pain from ‘over extended’ people. I can say this from the assurance of someone who’s been debt-free for several years now. Pain in the ass, but worth it.
Credit used to be something traditionally avoided. If a family wanted a TV, for example, they saved up money till they could buy it. It sounds lame, but generally, people just did not want to borrow money for things that weren’t considered essential.
The difference, in my mind, is secured credit versus unsecured credit. Credit cards are used largely for unsecured debt- things the credit card people do not want back in the case of default- clothes, stereos, TV’s, etc.
When first introduced, Credit Cards were a sign of affluence and prestige. Breaking out a Diners Club card at a restaurant showed that one had arrived. Not anymore.
Today, I’ve seen so many employees with no idea what they’re getting into. They seem to think the trappings of wealth means they are wealthy- entertainment centers, a new car, flashy clothes, jewelry, etc.,
Interestingly enough, a survey done on Real Life millionaires showed they rarely go into debt, (stupid debt, that is) avoid flashy clothes, live within their means. Boring, you might say.
The number one vehicle the average millionaire drives is a Ford F-150 pick up truck, a few years old. Go figure.
Personally, I have a desperate desire for bankruptcy reform to go through. I helped win for a client around $1.5 million in sanctions against a guy who filed a fraudulent lawsuit against my client. He then went and bought a $1.7 million condo as his homestead, thereby placing almost all of assets out of our reach (he’s in Florida). If the Senate version of bankruptcy reform goes through, we can seize the dirtbag’s house.
Not just a lobby…Lenders are also huge campaign contributors! The president of my credit card company, MBNA, was part of the GOP “Pioneers” which I believe means he gave more than like $100,000 of soft money to the GOP for the Bush campaign (and apparently helped raise a lot more). Now they are getting their payback. To be fair, these guys were apparently equal opportunity bribers and contributed handily to the campaigns of some Democrats on the finance committee (?) too…I believe Biden was one beneficiary.
Now, as Sua points out, there are some real loopholes that probably needed to be closed in the bankrupcy laws. (Interestingly, I heard that people in the Bush Administration people had very mixed feelings about whether to support the one that closes the loophole Sua refers to whereby people can hide their assets in very expensive houses which then can’t be taken to pay the debts…or something like that.) And, I must admit that I don’t have gobs of sympathy for people who show a lack of responsibility by spending way beyond their means (unless their means are very small).
Nonetheless, I think the OP makes a very important point (which kimstu also made to me in real life when we discussed this) regarding how the credit card companies already set their rates high enough to absorb lots of bankruptcies, etc. so this is now quite a windfall for them [which I am sure they will pass entirely on to us consumers…yeah, right! ] I also am particularly annoyed by a lack of responsibility on the part of these companies. It is more than a bit disingenuous to use all these tactics to encourage American consumers to spend beyond their means and then to complain when they do!
Sorry for the hijack, but you must be talking about Al Lerner. He, of course, is a major-league welfare queen, having gotten the city of Cleveland to build him a $300 million football stadium that didn’t cost him a cent.
] I also am particularly annoyed by a lack of responsibility on the part of these companies. It is more than a bit disingenuous to use all these tactics to encourage American consumers to spend beyond their means and then to complain when they do!