Saturday, April 23, 2005

But who will reform the reformers . . .

Well, President Bush has signed the bankruptcy reform legislation that imposes a means test for Chapter 7, mandatory credit counseling at the debtor's expense, caps on state laws about homestead exemptions, and a whole bunch more paperwork, all of which will push up the cost of bankruptcy.

I expect that bankruptcy attorneys might experience a rush of new business in the next few months, as people decide to file for Chapter 7 now, while they still can.

Of course, even without the reform, the judges presently have the power to dismiss a Chapter 7 filing for substantial abuse. But what do they know; they just have been seeing all the actual bankrupty filings and don't have access to the zeal and lore of the credit card companies.

I'm not actually against the stricter procedures for the debtors. I just would like to see the credit card companies' excessive interest and penalty charges, and targeting of desperate and unsophisticated debtors, brought under a little control so that they look a little more like the other lenders, credit-wise. I figure that all the add-ons to credit card accounts, and the excessive interest charged in the months just before the bankruptcy filing, to the degree that any payments on the account were actually made by the debtor, are preferences to the credit card companies as compared to the other creditors. At least they should be. I'd like to see some reform in that area.

And if people are looking for a playground for debtors abusing the system, take a look at Chapter 11 filings. Recognize that nobody ever files for bankruptcy unless they have something to protect. But individual debtors don't usually have the sophistication to "game" the system, and lots of bankruptcy attorneys representing individuals actually walk on the path of righteousness themselves. The "gaming" of the system, I suspect, occurs much more frequently and effectively in the case the large corporations that have the sophistication to see all the possibilities in debtor-in-possession status.

And when it comes to "gaming" the system, I also suspect the lobbying effort to get this issue before Congress, and passed into law, is a lesson on how to get your way by working the United States Congress. After all. It took years. The fact that it took years tells me that Congress was not all that eager to pass this legislation and has only done so when the pressure to pass became irresistable. And the fact the credit industry lobbyists spent all those years and created this much pressure over the years, doesn't exactly say much good about the credit industry's zeal to protect what is a pretty sad and snarky business, at depth.

Finally, I suspect that the number of Chapter 13 filings is not going to increase all that much and except for the expense of bankruptcy on the debtors, and on the public purse that has to support the increased workload on the bankruptcy courts, I don't think in the long run that the reform is going to enrich the credit card companies all that much.

But there is still such a strong odor about this whole thing.

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