New Bankruptcy Law

On April 20, 2005, President Bush signed into law Congress’ latest edition of compassionate conservatism. Most of the provisions in the new law do not take effect until October 17, 2005. One needs only to trace the money flow behind this legislation to determine whether or not the legislation is consumer friendly.

According to the Center for Responsive Politics, contributions from MBNA, the nation's top credit card issuer, skew strongly toward senators who supported the bill. MBNA’s employees and political action committee contributed $1.1 million between 1999 and 2004 to the senators who voted "yes" on the bill, an average of $14,700 per lawmaker. The Senators who voted against the bill raised a total of $85,000, or $3,400 per lawmaker, from MBNA's employees and PAC during that time. MBNA's employees and PAC have sent $958,100 since 1999 to current House members, 71 percent to Republicans. 

Psalm 34:6 reads: "This poor man cried, and the Lord heard him and saved him out of all his troubles." Paraphrasing this Psalm in light of the new bankruptcy legislation it might read: "This rich bank cried, and Congress heard him and saved him out of all his troubles." In fact, these crying bankers charge consumers 20 to 30 percent annual interest if you miss a payment or go over the credit limit and are not struggling. With the ability to charge exorbitant interest rates, credit card industry profits have risen steadily over the past decade. Financial Analyst Lou Dobbs writing in U.S. News and World Report observed: "It's ironic that Congress approved the bankruptcy bill to impose fiscal discipline on the middle class when the federal government last year ran up a $412 billion budget deficit and a $617 billion trade deficit."

All is not lost however because at least one study has shown that over 95 percent of current bankruptcy filers will still qualify for Chapter 7 under the new means test, demonstrating a lack of rampant abuse under the old law. The problem for consumers under the new law is primarily going to be navigating the red tape and legal minefield imposed by the new law. "The biggest difference is that bankruptcy is going to be a lot more expensive, difficult, and burdensome, said Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys. "There’s going to be a lot more paperwork." In addition, attorneys handling bankruptcy cases may face harsh financial sanctions if the information provided by their clients turns out to be inaccurate. As an example of the increased costs of filing bankruptcy, filing fees alone are increasing 31 percent from $209.00 to $274.00 for a Chapter 7.

A recent Harvard study shows that nearly half of all personal bankruptcies in this country are caused by costly illnesses and medical bills. "Do we run the country for the people, or do we run it for nameless, faceless banks or international corporations?" asks Harvard Law School Prof. Elizabeth Warren. "The middle-class working-family interests are not being guarded on Capitol Hill," says Illinois Democratic Sen. Dick Durbin. "They are, unfortunately, victims of what has become a tidal wave of pro-business legislation, which has been unfair to a lot of families that are struggling to get along." We know what Abraham Lincoln would say in answer to Ms. Warren. A government "of the people, by the people, for the people shall not perish from the Earth."