Bankruptcy Reform Causes Mother’s Suicide
In 2005, Democrats like Allyson Schwartz, Joe Biden, and many more int eh House and Senate voted for the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which, among other things, established as law:
* Mandatory credit counseling and debtor education. All potential bankruptcy filers must now undergo credit counseling and budget analysis counseling via an “approved nonprofit budget and credit counseling agency” prior to filing for bankruptcy. Chapter 13, Chapter 7, and Chapter 11 filers must also complete a course in “personal financial management” after filing the bankruptcy but before the bankruptcy is discharged.
* Additional filing requirements and fees. The new law increases the amount of paperwork involved in filing and raises the filing fees. The law also allows filing fees to be waived for debtors earning below 150 percent of the federal poverty level.
* Increased attorney liability and costs. Attorneys representing bankruptcy filers are now required to conduct an investigation of their clients’ filings and can be held personally liable for inaccuracies. Most bankruptcy attorneys predicted that this will result in increased attorneys fees and will make attorneys less likely to take on some cases. In addition, bankruptcy filings are now subject to audit in a manner similar to tax returns.
* Fewer automatic protections for filers. The new law eliminates some of the protections bankruptcy filers previously had, such as stopping or delaying evictions, avoiding driver’s license suspensions, and delaying child support proceedings.
* Increased compliance requirements for small businesses. The new law increases the bureaucratic compliance obligations and shortens the deadline for Chapter 11 reorganizations involving small businesses, a series of new requirements not applicable to larger businesses.
* Increased amount of debt repayment under Chapter 13. The new law made several changes that effectively increased the amount of debt that Chapter 13 filers will have to repay. In addition, the “super discharge” provision, which allows filers to discharge many of their debts under Chapter 13 in return for agreeing to a payment plan, is significantly curtailed under the new law.
* Increased length of time between discharges. The new law increases the length of time from six to eight years between which a filer can receive a Chapter 7 discharge after a prior Chapter 7 case.
All of this new legislation applies only to individuals and families. Corporations are exempt (because after all, what’s a few billion here and there, some schmuck owes MBNA a couple thousand dollars and we can’t let him off the hook!). There are no exceptions for medical costs or any other unexpected expenses, not even to the victims of Hurricane Katrina.
My regular readers know I’ve been complaining about this bill for years and pointing the finger at those who foisted it upon consumers.
From Bloomberg, here’s a blockquote I think we all know well:
Washington Mutual Inc. got what it wanted in 2005: A revised bankruptcy code that no longer lets people walk away from credit card bills.
The largest U.S. savings and loan didn’t count on a housing recession. The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the International Monetary Fund and the World Bank.
“Be careful what you wish for,” Westbrook said. “They wanted to make sure that people kept paying their credit cards, and what they’re getting is more foreclosures.”
Washington Mutual, Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. spent $25 million in 2004 and 2005 lobbying for a legislative agenda that included changes in bankruptcy laws to protect credit card profits, according to the Center for Responsive Politics, a non-partisan Washington group that tracks political donations.
The banks are still paying for that decision. The surge in foreclosures has cut the value of securities backed by mortgages and led to more than $40 billion of writedowns for U.S. financial institutions. It also reached to the top echelons of the financial services industry.
It’s not just banks that are paying for that decision. Carlene Balderrama’s family is paying as well:
TAUNTON - The housing crunch has caused anguish and anxiety for millions of Americans. For Carlene Balderrama, a 53-year-old wife and mother, the pressure was apparently too much.
Police say that Balderrama fatally shot herself Tuesday afternoon, 90 minutes before her foreclosed home was scheduled to be sold at auction. Chief Raymond O’Berg said that Balderrama faxed a letter to her mortgage company at 2:30 p.m., saying that “by the time they foreclosed on the house today she’d be dead.”
The mortgage company notified police, who found her body at 3:30 p.m. The auction had been scheduled to start at 5 p.m., when bidders showed up at the house and found it surrounded by police cruisers.
But, unbeknownst to buyers and to Balderrama, the auction had been postponed by the time she grabbed her husband’s high-powered rifle, O’Berg said.
Balderrama left a note for her family, saying they should “take the [life] insurance money and pay for the house,” O’Berg said. The chief said he did not know, however, if the family would be able to collect on the policy in the event of a suicide.
Neighbors on Duffy Drive, a forested side street on the city’s east side, said Balderrama had lived in the two-story, brown-shingled, raised ranch for about four years with her husband, John, who is a plumber, and their 24-year-old son, who works in a restaurant.
Now before you say “how is a foreclosure the fault of Allyson Schwartz, Joe Biden, Tom Carper, Evan Bayh, John Murtha, Bob Menendez, and all those other corporate-felating weenbags”, let me point you to the Sunday Times front page story from July 20, 2008:
behind the big increase in consumer debt is a major shift in the way lenders approach their business. In earlier years, actually being repaid by borrowers was crucial to lenders. Now, because so much consumer debt is packaged into securities and sold to investors, repayment of the loans takes on less importance to those lenders than the fees and charges generated when loans are made.
Lenders have found new ways to squeeze more profit from borrowers. Though prevailing interest rates have fallen to the low single digits in recent years, for example, the rates that credit card issuers routinely charge even borrowers with good credit records have risen, to 19.1 percent last year from 17.7 percent in 2005 — a difference that adds billions of dollars in interest charges annually to credit card bills.
I emphasized those two sentences because I think everyone has seen their rates go up to catastrophically high levels. And then there’s this:
Average late fees rose to $35 in 2007 from less than $13 in 1994, and fees charged when customers exceed their credit limits more than doubled to $26 a month from $11, according to CardWeb, an online publisher of information on payment and credit cards.
[snip]
“Today the focus for lenders is not so much on consumer loans being repaid, but on the loan as a perpetual earning asset,” said Julie L. Williams, chief counsel of the Comptroller of the Currency, in a March 2005 speech that received little notice at the time.
The Times adds,
Such fees and interest rates are a growing burden on Americans, especially those who rely on credit cards to make ends meet.
And recent changes in the bankruptcy laws, supported by financial services firms, make it all the harder for consumers, especially those with modest incomes, to get out from under their debt by filing for bankruptcy.
[snip]
Not surprisingly, such practices generated dazzling profits for the nation’s financial companies. And since 2005, when the bankruptcy law was changed, the credit card industry has increased its earnings 25 percent, according to a new study by Michael Simkovic, a former James M. Olin fellow in Law and Economics at Harvard Law School.The “2005 bankruptcy reform benefited credit card companies and hurt their customers,” Mr. Simkovic concluded in his study. He said that even though sponsors of the bankruptcy bill promised that consumers would benefit from lower borrowing costs as delinquent borrowers were held more accountable, the cost of borrowing from credit card companies has actually increased anywhere from 5 percent to 17 percent.
[snip]
Patricia A. Hasson, president of the Credit Counseling Service of Delaware Valley, said Ms. McLeod would probably wind up having to repay 40 percent to 60 percent of her credit card debt. The owner of her mortgages could come after her for the difference between what she owes on her loan and what her house ultimately sells for. The first mortgage was sold to investors; Citigroup declined to say whether it held onto the second mortgage or sold it to investors.A sheriff’s auction of her home on June 12 received no bidders, Ms. McLeod said. The bank will soon evict her.
When I called Joe Biden’s office yesterday, I spoke to an arrogant, rude, and extremely snide young man who cut me off and lectured me about the definition of a recession. I called back to today, and read them the story about Ms. Balderrama. Not so snotty this time.
Perhaps Joe Biden and his pals at MBNA will be ponying up for the headstone. I understand funeral expenses can be murder. Just like the Bankruptcy Reform Bill.
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