President Bush signed the bankruptcy bill last week. I'd like to take some time to update my old entry on it to reflect the recent developements.
The bill is a transparent attempt by Republicans to screw the poor. I've documented the reasons for this in my old post, but here are some more:
-- There are some estimates for exactly how large the increase in fees as a result of this bill will be. Recall that the bill introduces much more paperwork, many more affidavits, new liability for layweyrs, more court dates.
Overall, the Congressional Budget Office projects that attorney fees will jump by $150 to $500 per case, on average, under the new law.
Legal costs for the more expensive and lengthy type of bankruptcy filing, a Chapter 13, could surge locally from about $2,000 to $3,000 per case, said Paul McElrath, head of the bankruptcy practice at Moody, McElrath & Johnston, Downtown. He's advising clients considering bankruptcy to act now before the new rules take effect.
-- The bill forbids anyone who makes above their state's median income to file for chapter 13 bankruptcy, which allows you to keep some assets after the process is complete. Republicans have repeatedly voted down exemptions for bankruptcies due to medical costs. Imagine someone who makes above the median income diagnosed with a complex disease and ratchet up huge medical costs. Under this law, they would lose every penny.
-- As far as income determination goes, the bill allows debtors to write off their mortgage payments, but not rental or lease payments, thus disadvantaging the poor.
Take a look at this post (scroll down) from the American Constitution Society for more details.
One of the more annoying things about the debate over this bill has been the readiness of the supporters of the legislation to offer meaningless or one-sided statistics, or to try to cast doubt on legitimate studies that do not support their point of view. I am thinking in particular of Todd Zywicki of the Volokh Conspiracy who is perhaps the most egregious example.
For example, note how Zywicki takes on the assertion that over 50% of medical bankruptcies are due to health reasons. Now anytime you want to produce such a statistic, you have a measurement problem: how do you decide when a bankruptcy is "due" to a health problem? Zywicki took one study and quibbled to death with it. Repeatedly, he asked, but what if you change this detail? But what if you change that?
Anyway, it turns out that if you change the definition, the numbers don't change much. We can hardly blame Zywicky for not being precient, but lets note that a number of previous studies (see question 8 here) had come to exactly the same conclusion, despite using different methodology.
Or consider how Zywicky supports the notion that there is significant fraud in the system. He cites numbers provided by law enforcement agencies who have a clear interest in more money to police the issue, and he cites an estimate by an outlet closely linked to credit card agencies. By contrast, the non-partisan American Bankruptcy Institute has a much, much lower estimate.
Zywicki's dishonesty is not in outright lying, but in continually presenting one side of the data. He cites numbers that support his position, even if the sources are dubious, and ignores numbers that do not. He quibbles with one study, ignoring the others out there, and avoiding comment on updated numbers that disprove his point.
As a final note, I should say that the 50% of bankruptcies due to medical debt figure, while as solid as can be expected from such a study, still suffers from the same problem that plague all studies on this issue: self-reporting. People have a statistically documented tendency to mislead the interviewer in studies and one can expect people to lie and say that their bankruptcies were due to reasons beyond their control. In this case, however, this problem was mitigated as the respondents had to write responses while in the presence of their bankruptcy trustee, who was familiar with the facts of the case, and in front of whom they had been sworn to tell the truth. The interviewers also made a lot of effort in following up with detailed medical questions to make sure that the respondents were telling the truth. Nevertheless, despite these efforts - which I really cannot evaluate since there is no data at how often people mislead in such circumstances - I'm skeptical that any trustworthy numbers can be obtained on this issue.