Tuesday, March 08, 2005

Few things are as politically revealing as the recent bankruptcy bill. Supported primarily by credit card companies, and pushed through the Congress mainly by Republicans, the bill would make it more difficult for poor and middle class families to file for bankrupcy: more paperwork, new complicated rules, more work for lawyers, unwavable deadlines, and increased minimum payments to creditors. By contrast, the law pointedly refuses to close two holes in the systems typically used by the affluent: offshore trusts and the homestead exception.

Details: if you are rich, about to file for bankruptcy, and wish to shield assets from your creditors, here are two well-publicized ways to do it. A small number of states will allow you to set up a trust incorporated overseas - a trust that will be shielded from U.S. courts. Utah is one such state - and you don't need to be a resident to set up the trust. Some states - like Florida - also will shield your home from creditors. Purchasing a home in Florida, filing for bankruptcy, and selling the home afterwards lets you keep your money. It goes without saying that one must be rich to be able to take advantage of these opportunities.

That this bill cracks down on the poor, while doing nothing to harm the rich, is no accident. Democrats offered two amendments (Schumer Amendment No. 42, Feingold Amendment No. 17) addressing the above problems. Republicans voted them down.

The immense hypocrisy of this should be obvious to anyone. Let us also note that while the most visible bankrupcies lately have been by corporations - Enron, Worldcom - and airlines, who go in and out of bankruptcy court almost as a normal business operation - Republicans primarily feel that the only bankruptcy laws deserving of reform involve individuals - and poor and middle class ones at that.

Finally, let's note regardless of the hypocrisy, the arguments for reform are, in any case, weak. The statistics have been endlessly cycled around in this debate: half of all bankruptcies result from medical bills; 90% are immediately preceeded by either ilness, job loss, or divorce. Statistically, the amount of abuse is pretty minimal.

But bad arguments or not, the bill is set to pass, buoyed by a Republican majority willing to do the bidding of the corporations that fund it, and two or three Democrats from states with heavy credit card industries willing to vote the interests of their state. Disgusting.

Stuff to read on this issue:

This Kos entry is a good introduction. Harvard prof Elizabeth Warren and her students have a blog devoted to the bill here - read and scroll up. See here for one survey on the causes of bankruptcy. Paul Krugman always does a good job of explaining economics in an emotionally engaged manner. Scott Lemieux has a good post on the details here.


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