ANDY SCHUB

 

Andrew Schub is our Newsletter Contributing Editor. He will be posting weekly stories on things Bush and Fox News you may not know about but should, may know about but do not know enough about, or may know about but dagnabbit you just need to know more.

 

A BANKRUPT LAW FROM A BANKRUPT CONGRESS
by Andrew Shub

On Tuesday, March 8, the U.S. Senate all but assured final passage of the first major overhaul of the nation's bankruptcy laws in 27 years, which will make it harder for citizens to declare bankruptcy.

NEW YORK TIMES: BANKRUPTCY BILL SET FOR PASSAGE

Under current bankruptcy laws, most individuals file bankruptcy under Chapter 7, which allows individuals to discharge debts after forfeiting a portion of their assets.

If (when) the new laws pass, persons making more than the median annual income in their state will be forced, in most cases, to file bankruptcy under Chapter 13. Chapter 13 does not allow debtors to discharge debt, Chapter 13 requires full repayment according to a strict repayment plan based on a "means test."

Professor Elizabeth Warren, Harvard Professor of Law, in her testimony to the US Senate, however, points out serious flaws in the "means" test:

"The means test as written has another, more basic problem: It treats all families alike. It assumes that everyone is in bankruptcy for the same reason‹too much unnecessary spending. A family driven to bankruptcy by the increased costs of caring for an elderly parent with Alzheimer¹s disease is treated the same as someone who maxed out his credit cards at a casino. A person who had a heart attack is treated the same as someone who had a spending spree at the shopping mall. A mother who works two jobs and who cannot manage the prescription drugs needed for a child with diabetes is treated the same as someone who charged a bunch of credit cards with only a vague intent to repay. A person cheated by a sub-prime mortgage lender and lied to by a credit counseling agency is treated the same as a person who gamed the system in every possible way. "

US SENATE: TESTIMONY OF ELIZABETH WARREN

Not everyone is going to have a harder time under the new bankruptcy laws. According to the New York Times, "The [new] measure fails to do anything to curb abusive bankruptcy practices by wealthy families, who can create special trusts to shelter their assets, and by corrupt companies like Enron and WorldCom, which were able to find favorable bankruptcy courts and deprive many of their employees and retired employees of benefits."

Democrats in the Republican controlled Senate, unable to stop the new bankruptcy laws from passing, attempted to add protections for people most hard hit. Unfortunately --

The Senate voted 59-40 to reject a Democratic amendment that would allow older people to get special homestead exemptions to keep their homes when they file for bankruptcy.

Also rebuffed, 58-39, were two proposals focused on people whose significant medical expenses for illness forced them to file for bankruptcy.

And, by 59-40 vote, the Senate defeated a Democratic proposal to require credit card statements show how long it would take a consumer to pay off debt making the minimum monthly payment, and what total interest charges would be at the end of that time.

The New York Times names the main lobbying forces for the bill "a coalition that included Visa, MasterCard, the American Bankers Association, MBNA America, Capital One, Citicorp, the Ford Motor Credit Company and the General Motors Acceptance Corporation." However --

It's not just banks and credit card companies that will benefit from preventing people from declaring bankruptcy.

The Bush administration and Republican Party will benefit from the new bankruptcy laws in a big way.

More stringent bankruptcy laws means less people declaring bankruptcy. Less people declaring bankruptcy makes economy numbers look good -- even if economy facts have not changed. And that is good for the Republican party.

Bankruptcy rates are one of the clearest indicators of how the economy is functioning.

Unemployment rates only track people receiving unemployment benefits. Unemployment benefits last one year, then, whether or not an individual has been able to find work, that person, as a statistic, drops off the chart. So, the longer large numbers of citizens remain unemployed, the less accurate unemployment numbers become because more and more people, although still unemployed, have simply ceased to be counted as "unemployed."

Bankruptcy numbers do not drop off the chart. Bankruptcy numbers are a clear indication of how an economy is doing -- or not doing.

Bush can claim the economy is doing better -- whether or not it is true -- when unemployment numbers drop and people unfamiliar with the way unemployment numbers actually work may believe it.

Bush cannot,however, mask growing bankruptcy numbers and the fact more Americans are declaring bankruptcy than ever before in the nation's history --

Unless Bush finds a way to limit the number of people who can declare bankruptcy.

That is what is happening right now. Congress is passing bankruptcy laws so stringent, bankruptcy will not be an option for citizens so mired in debt there is no other way out for them. And when 2008 elections roll around, you can be sure the Republican administration will point to a decrease in bankruptcies since Bush's second term and imply that is a sign of a strengthening economy.

The Center for American Progress has the full report on bankruptcy numbers in the US and the real story is much different:

RISING PERSONAL BANKRUPTCIES: A SIGN OF ECONOMIC STRESS

But maybe you don't think changes in bankruptcy laws are a big deal. Maybe think only deadbeats declare bankruptcy.

Think again.

A new study released by Harvard University and published in Health Affairs reveals "nearly half of all personal bankruptcies in the United States are triggered by big medical bills racked up because of serious illnesses or accidents."

Nearly half. As in, 46%.

Those were not people without health insurance either. 75% of the individuals who declared bankruptcy due to medical bills had health insurance. Health insurance just wasn't enough

MARKET WATCH: ILLNESS AND INJURY CONTRIBUTORS TO BANKRUPTCY

Unless you are absolutely certain you will never face a staggering health care bill, what's going on in Congress right now concerns you.

Andrew Shub