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MBNA and the other credit card companies who promoted
bankruptcy law changes have gotten a rude awakening.

In the first two weeks of October,
500,000 bankruptcy cases were filed, compared to 30-35,000 in a normal two-week period.

Through early December 2005, over 2 million cases were filed, a 49% increase over the
previous year.  In my home state of Oregon,
10,183 cases were filed from October 1 through 16, compared with 1,033 in the same time
frame in 2004.

There was a drastic drop in bankruptcy filings at the end of 2005 and in early 2006, but
the demand for bankruptcy has rebounded.  

And very few of the people who've received credit counseling after the new bankruptcy law went into
effect were recommended for a Chapter 13 bankruptcy instead of Chapter 7.  At the Northwest
Bankruptcy Institute (which I attended several weeks ago), it was estimated that 97 percent
of the people who were interested in filing Chapter 7 could still do so under the new law.

What's worse, a constant complaint from bankruptcy trustees and judges is that they were never
consulted by Congresspeople and the lobbyists who wrote the law.  Judges have an interesting
way of dealing with laws that seem to counter efficient judicial administration - they interpret
the law strictly and according to the Czech principle of švejking - carrying out a law or
order to its letter to stymie its intent.  

One case involved a cram-down of a car loan.  The new bankruptcy law prohibits a Chapter 13 debtor
from reducing the amount of principal one owes on a car in a Chapter 13 bankruptcy plan if the car
was bought less than 2 1/2 years before the filing.  The
law is silent about reducing the interest rate, and judges have used that flaw to approve
plans that leave the principal the same, but reduce the interest rate.  (Oregon has its own
Chapter 13 form, and it was hinted that you could still cram the loan down if the creditor
didn't object!)

The banks that promoted this law haven't reaped benefits from it.  Perhaps they should
be going after the root causes of bankruptcy - job loss and high medical bills.  (I don't think
the banks can do much about divorce, however.)  

Banks and other creditors should have their
economic advisors rail against downsizing, as it causes instability, as workers who don't
feel secure will reduce spending, and workers who continue to spend are likely to file
for bankruptcy if they lose their jobs.

Similarly, banks and medical providers should stump for single-payer health care.  Even if
people have health insurance, one major illness or even a difficult pregnancy can force
people into bankruptcy, wiping out the creditors' claims.  (I have had many people come
into my bankruptcy practice with 80/20 health insurance, where the uncovered 20% has forced
them into bankruptcy, let alone someone without insurance.)

Originally posted to varro on Sun May 07, 2006 at 07:01 PM PDT.

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Comment Preferences

  •  Can we forgive Joe Biden yet? (4+ / 0-)

    The Truth Starts With You.

    by tonydimarzio on Sun May 07, 2006 at 06:59:50 PM PDT

  •  Interesting (2+ / 0-)
    Recommended by:
    varro, ChemBob

    and good to know.  Thanks.

    •  c'mon (0+ / 0-)

      this was supposed to screw over all of us by now.

      "No, I understand that. But I - I would really like to have a chance to discuss what you keep telling me what I'm not discussing." -- Rep. Barney Frank.

      by BiminiCat on Sun May 07, 2006 at 07:14:10 PM PDT

      [ Parent ]

      •  No, it wasn't (3+ / 0-)
        Recommended by:
        givmeliberty, Rick Oliver, Quotefiend

        The new bankruptcy law was supposed to screw over the people who need bankruptcy relief. And it has. People who need relief now have to pony up an extra $50 or so to get credit counseling, which tells them nothing but what they already knew -- they need bankruptcy relief.

        This diary's author can probably attest better than me about the harm this law has done. But it was never about getting all of us, just those hanging on the edge of the financial cliff by their fingertips.

        "There's only so much money a man needs. The rest is just for show." Mrs. Gump

        by VetGrl on Sun May 07, 2006 at 08:10:12 PM PDT

        [ Parent ]

        •  People have been told they can't file any more... (0+ / 0-)

          The problem is that I don't see the people who've been discouraged away from filing for bankruptcy by the whispering of people they know, or by abusive debt collectors.

          I'm sure there are plenty of people who've been told they can't file for bankruptcy any more.

          9-11 changed everything? Well, Katrina changed it back.

          by varro on Sun May 07, 2006 at 08:56:01 PM PDT

          [ Parent ]

  •  Creditor pain? Where? (0+ / 0-)

    I don't see much evidence that the galactic credit-card  empires are suffering (though I had hoped from the headline of the diary I would find it here).  Didn't a lot of banks just post record quarterly earnings?

    Anybody seen my owl?

    by Minerva on Sun May 07, 2006 at 07:08:33 PM PDT

  •  Well (12+ / 0-)

    This is the one bill that I was truly disappointed with the Democrats who voted for it. The only ones I give a pass to are those from South Dakota and Delaware, where the credit card companies employ significant numbers of their constituents. Otherwise I was really disappoitned with the other Democrats who voted for this.

    This bill is horrendous. The people who suffer the most are those in major metropolitan areas likes New York, Chicago, DC, LA, and other cities. For they are the ones most likely to be thrown onto Chapter 13 because their incomes are probably higher than their respective state's median. So even though they make a lot of money, when you factor in the costs of living, they suffer when determining which eligibility under which to file.

    Tonight there was a very interesting report on 60 minutes about Sallie Mae and student loans. I found out something interesting about them. When someone defaults, not only does Sallie Mae have the loan principle repaid by the government, which guarantees the loans, they can go after the debtor through collection agencies. On top of that debtors are unable to discharge the student loans through bankruptcy.

    A recent Supreme Court decision enables student loan companies to even garnish wages from debtors's SSI checks. The court ruled that a man unable to work due to disability, whose only income is a paltry SSI check, can have part of it garnished to pay back the student loan he took out. Even though he is unable to work and cannot pay the debt the court allowed the student loan company to garnish part of the check. Student loan companies can go after and all assets held by those who default even social security checks. The only thing immune from their reach is child support.

    The 60 minutes report had stories of people who had lost everything in natural disasters and had medical emergencies. The student loan companies would not work with them. The report explained how Sallie Mae passes its deliquent loans to its collection subsdiaries. And these collection agencies can then be ruthless.

    I agree that those who intentionally don't pay their loans back should have their assets raided. But those who are disabled, suffer loss from a natural disaster, or who are simply victims of life's unfair tragedies should be able to find some relief.

    •  401k plans and student loans (3+ / 0-)

      I found out last week that you can only withdraw money from 401k plans in emergency situations such as needed with health bills and mortgage payments.  But they won't let you take it out to pay existing studen loans, even if it the 401k monies would prevent one from going in default.  

      Seriously.. we need radical student loan reform.  The SL banks are legalized, nationalized loan sharks.  Horrible!

      •  Agreed... (5+ / 0-)

        ...I paid off my last student loan in March, 11 years after graduating from law school.

        But I'm dealing with other people's student loans in my practice, including people who discharged them under the previous bankruptcy laws!  (Prior to 1997, student loans over 7 years old were dischargeable in bankruptcy.)  Some lenders are even going after people who had loans discharged under the old law.

        9-11 changed everything? Well, Katrina changed it back.

        by varro on Sun May 07, 2006 at 07:31:31 PM PDT

        [ Parent ]

      •  And if you take it out for the 'allowed' reasons (2+ / 0-)
        Recommended by:
        Quotefiend, pkbarbiedoll

        And if you take money from your 401K for the allowed reasons, there are interesting rules and if you don't follow them exactly, you're screwed. For example, if you are unemployed, you can use your 401K money to pay credit card bills. (really) BUT, you can't use it if you didn't collect unemployment in the last 12 months.  

        So if you've been unemployed for more than a year, you can't use your 401K to pay for the credit card bills, even though you're now in a more severe situation. This is true even if your spouse became unemployed during the last year and did collect unemployment.

        Democracyfest July 14 - 16, 2006: The toolkit for taking back our democracy, disguised as a fun-filled weekend.

        by mataliandy on Sun May 07, 2006 at 09:42:13 PM PDT

        [ Parent ]

        •  yet nobody seems to care.. who (1+ / 0-)
          Recommended by:
          Quotefiend

          is in a position of leadership within the democratic party.  forget the repugs they like it this way.

          see, poor people and those who are rapidly moving in that direction, are the only people noticing this.  We bitch about it in web forums and maybe we'll call our senators but we know damn well nothing is going to be done.

          democrats & repugs with good income and lots of money in the bank don't give two shits about what happens to the less fortunate.  

    •  Student loans are even harder to discharge (3+ / 0-)

      under this new law. Thanks to an amendment offered by Sen. DeWine (R-OH), it's not just the government and charities that can continue to collect on past due student loan debt after bankruptcy, but commercial lenders as well. In other words, Chase or MBNA or whatever the big bank is called nowadays, can chase ordinary folks who are barely getting by into the grave. Yet another reason to support Sherrod Brown in his bid to unseat DeWine next November.

      "There's only so much money a man needs. The rest is just for show." Mrs. Gump

      by VetGrl on Sun May 07, 2006 at 07:33:44 PM PDT

      [ Parent ]

      •  I think what you're thinking of... (0+ / 0-)

        ...is an amendment that made loans from for-profit educational institutions (trade schools) non-dischargeable.

        Prior to the Bankruptcy Reform Act, I helped debtors who owed money to for-profit trade schools to discharge their school debts.  That's no more...

        9-11 changed everything? Well, Katrina changed it back.

        by varro on Sun May 07, 2006 at 07:38:52 PM PDT

        [ Parent ]

        •  damn it's wierd (0+ / 0-)

          to actually see someone post comments who actually know specific details of the law itself.

          "No, I understand that. But I - I would really like to have a chance to discuss what you keep telling me what I'm not discussing." -- Rep. Barney Frank.

          by BiminiCat on Sun May 07, 2006 at 08:52:58 PM PDT

          [ Parent ]

          •  I'm a bankruptcy lawyer... (0+ / 0-)

            ...and all we've been doing for the past year or so is study the new law and try to make sense of it.

            Almost nobody is happy with it - it radically changes our practice for no good reason.  And the judges and trustees are the least happy with it.

            9-11 changed everything? Well, Katrina changed it back.

            by varro on Sun May 07, 2006 at 08:58:58 PM PDT

            [ Parent ]

            •  the purpose was (0+ / 0-)

              to dis-incent people to run up huge credit card bills and then sneak out from under them.

              i can't say it succeeded in doing that.  i am not an expert.

              but i understand some logic there.  we, as good liberals, worry about real people who have real tragedies happen to them, the lay offs, the unexpected medical bills.... but the fact remains, if you wanted to make the case you could easily point to a quantifiable amount of abuse.  most notably, people who are clearly making enough to pay off their debt, but just don't want to.

              one of the benchmarks was if you're making more than state median wage, then you should not be allowed to file cause... the way i think of it,... whatever more per month you make more per month than state median wage really should go towards paying off your debt.

              that makes sense to me.

              but i don't really know if it works that way.

              anyway, it's just refreshing to see a diary about the issue that isn't so focussed on the whole world becoming homeless and destititute within the next three years.

              the thing is, what keeps people who get the 100k credit limit, run it up, ... they make 60k per year and then think they can file for bankruptcy.

              if you do that, i think you put 20k of your yearly salary towards your debt and if it takes 5 to 7 years to pay it off, so be it.

              you live off of 40k per year.  i do it and i never even had 100k credit to spend on anything.  life's a bitch.

              and just to add.  most dem amendments offered on the legislation would exclude people like katrina survivors.  and vets.  etc.

              "No, I understand that. But I - I would really like to have a chance to discuss what you keep telling me what I'm not discussing." -- Rep. Barney Frank.

              by BiminiCat on Sun May 07, 2006 at 09:13:04 PM PDT

              [ Parent ]

      •  Well (0+ / 0-)

        To my knowledge student loans have been non-dischargeable for a VERY long time.

        •  They have, but they haven't (0+ / 0-)

          For a time, student loans were dischargeable if they'd been in repayment for a specified period of time or if paying the loan would present an "undue hardship" on the person in bankruptcy. Around 1997, the time period part was eliminated, leaving only the undue hardship part.

          "There's only so much money a man needs. The rest is just for show." Mrs. Gump

          by VetGrl on Sun May 07, 2006 at 07:59:03 PM PDT

          [ Parent ]

          •  Yeah (1+ / 0-)
            Recommended by:
            Hornito

            But I am sure that proving "undue hardship" is all but impossible. Given that the Supreme Court recently ruled that the student loan companies could even garnish a disabled man's (who was unable to work now) paltry SSI check, it is clear that the odds of proving "undue hardship" is impossible.

  •  I work for a restaurant (4+ / 0-)
    Recommended by:
    mataliandy, Jesterfox, BiminiCat, ArchiPup

    and spend the hours around lunchtime delivering food to cubicle jockies in the area (while listening to Al Franken on the car radio, that's right, it's a pretty sweet gig.)
    There's this one company that all the drivers absolutely detest havng to go to.  The entire workforce is uniformly rude, nasty, and insultingly cheap when it comes to gratuities.  The company's name gives no clue as to the nature of their business.
    One day while I was waiting for an individual to come out, claim their order, and stiff me, I asked the receptionist "So, what type of business do you folks do?"
    "Medical collections," was the response.
    Suddenly, it all became clear.  The people that me and my fellow delivery drivers were dealing with spent their days on the phone, harranguing people who had the temerity to become ill and actually seek treatment, and whose insurance (if they had any) had stuck them with expenses they couldn't pay.
    Now, whether it was doing this for a living that had turned these individuals into wretched human beings, or that people who were already wretched human beings are attracted to such a job, I leave for others to figure out.

    Turning water into wine is just going to give them an entitlement mentality.

    by jazzmaniac on Sun May 07, 2006 at 08:02:42 PM PDT

    •  can you cut them off? (0+ / 0-)
      •  Depends on the state. (1+ / 0-)
        Recommended by:
        mataliandy

        If you tell them to stop calling you, or to stop contacting you altogether (includes mail), by law they must stop.  You can sue them if they don't, and there are plenty of lawyers who make their living suing collection agencies.

        The debt still stands though, and depending on the state again, they can garnish your wages, get a judgement, take your property (there are required notifications and deductions and such though).

        What Vetgirl fails to include in her early post is that Democrats wanted exceptions for things like hospital bills and other "unavoidable" debts... which the Republicans decided to override.  Sometimes your choices in life are limited to the lesser or two evils.

        Don't get sick when the Republicans are in charge.

    •  Well (0+ / 0-)

      I'm not going to defend abusive debt collection practices, but many of those people there were just doing their job. Now I know it sucks to have to work for a collection agency, but someone has to do it.

  •  the Banks were conned... (0+ / 0-)

    ...by Delay and Abramoff's K street gang.  I wonder how their political contributions will shift when they realize they were "had" worse than the Native American Tribes?

    Republican't Leadership is a dangerous combination of cut-backs and incompetence.

    by casamurphy on Sun May 07, 2006 at 08:16:23 PM PDT

  •  bankrupt (5+ / 0-)

    In 82 I got a divorce so I had no ins I had a job but had a three month wait for ins to kick in.
    I got real sick and had to have a Hysterectomy
    The hospital wanted 100$ a month of course I lost the job so I had no money,I stayed with my daughter for 10 weeks then found a crap job for min wage.It was turned in to a collection agency.
    I sent them 20$ a month they would call and bitch so I would say i will send 10! no 20 would be ok.
    This went on for years, One day this Guy calls and asks if I have a car I said yes why He says just bring the title in So i told him maybe you misunder
    stood I had a hysterectomy not a lobotomy!!I never thought I would live long enough to pay it off but I did.Oh even the guy laughed at that..
    Iam 65 and there is nothing worse then being sick and broke, thats why i feel so bad for the homeless.

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