CONVINCED that freeloaders are taking advantage of current bankruptcy laws, Congress is poised to act. But the reforms about to pass could hurt people we should want to help.
Three years ago, bankruptcies were on the rise, and Congress was mobilized by stories of people who lived the high life on borrowed money and then casually claimed immunity from their creditors. But now, personal bankruptcy filings are off, falling 9.3 percent last year from the 1997 level.
Research has also revealed that many of the stories of extravagance don't hold true. About 96.5 percent of those who file bankruptcy are unable to pay for anything beyond life's necessities.
Many are saddled with huge medical bills or have lost their jobs. Women who head households -- consistently among the most impoverished Americans -- filed 40 percent of the bankruptcies.
Congress' proposed solution would add to their miseries. The current bill creates a stringent formula requiring those who file for bankruptcy to draw up five-year repayment plans instead of allowing them to wipe out their debts. It would allow creditors access to debtors' retirement accounts -- something that could ensure lifelong poverty.
Of course, the bill wouldn't hurt the small percentage of rich people who file bankruptcy. It wouldn't set a homestead cap, for example, so in states like Florida and Texas, folks with million-dollar mansions can hang onto them while they refuse to pay those they owe.
Even worse, Congress won't consider including provisions that might prevent people from getting into unmanageable debt in the first place. The bill includes nothing that would inform borrowers -- before they borrow -- of the real costs of paying off credit card debt at the minimum monthly level. It would do nothing to restrain credit card issuers from extending credit to college students who have no assets or capacity for repayment. The reform also includes protections for abusive payday lenders.
The measure nearing the House and Senate floors favors creditors and would create intolerable burdens for many medium- and low-income people in desperate financial straits. It needs massive revision to be reasonably called bankruptcy law reform.