The Bush White House loves to accuse critics of its tax-cut policies of engaging in “class warfare.”
However, it’s hard to imagine a more egregious example of class warfare than the Bush-pushed “bankruptcy reform” bill that just cleared the U.S. Senate.
This measure, S256, long sought by credit-card companies and retailers, will fall heaviest on meager-income Americans who slide into financial trouble. It could have addressed myriad schemes used by the wealthy to shield their assets from creditors. It could have taken on some of the highly profitable but ethically suspect lending practices — predatory mortgage loans to the elderly, high-interest credit cards to college students, payday loans to the working poor — that too often send the recipient into a downward spiral of debt.
Instead, the bill focused on an easy target — low-income folks who find themselves in dire straits.
The core of the “reform” involves a tightening of the requirements for Chapter 7 bankruptcy, which erases debts entirely after certain assets are forfeited. Under the bill, which will return to the House for final passage, anyone who earns more than the state’s median income and can pay at least $6, 000 over five years would be steered into Chapter 13 for a judge to order a debt-repayment plan.
Current law gives judges more leeway to determine which chapter of the bankruptcy code is appropriate for an individual.
Credit-card lenders have argued that bankruptcy has lost its stigma and the law needed to be changed to raise the threshold for its protections.
There is no doubt that bankruptcy has become more prevalent in recent years, but in most cases it is not a reflection of consumer recklessness or frivolity — or a cavalier choice. A recent Harvard University survey found that more than half of all personal bankruptcy filings can be attributed to medical bills — and a majority of those filing actually had health insurance. Other frequent factors include divorce and job loss.
Then there is the credit-card factor. The nation’s revolving debt increased almost fifteenfold, to nearly $800 billion, between 1980 and today, according to a coalition of consumer groups that opposed the bankruptcy bill.
That debt did not grow in a vacuum. The credit-card industry has thrived with practices that make it easy for a consumer to develop an addiction to plastic — and make it hard to break it. Customers who fall behind on payments are immediately socked with fees and higher interest rates that can make it difficult, if not impossible, to catch up on their rising debt.