OPINION & EDITORIAL
For everything else, there’s bankruptcy
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Also by Zach Stern:
- Conservative betrayal (April 14, 2005)
- Freedom and responsibility (May 5, 2005)
- For everything else, there's bankruptcy (March 17, 2005)
- The revolution continues (March 3, 2005)
- Voter apathy with reason (February 17, 2005)
Related Stories:
- A visa to mastering credit debt (February 21, 2005)
- Students should take responsiblity for credit card debts (April 12, 2007)
- Students quickly charging themselves into oblivion (December 12, 2007)
- Identity theft in a largely plastic world (December 1, 2004)
- What's wrong with a little sacrifice? (March 3, 2003)
by Zach Stern
Thursday, March 17, 2005
If you’ve ever been tempted by the extraordinarily generous extensions of credit offered by our nation’s credit-card companies and financial institutions, pay attention, because your rights are about to be changed. Particularly for students who have succumbed to the temptation of the mountains of supposedly “free” money, the new Bankruptcy Abuse Prevention & Consumer Protection Act of 2005 currently being thrown around in the halls of Congress may have serious and personal consequences on how to deal with getting out of debt.
But let’s get one thing straight — we each accept credit at our own risk. It is the individual’s responsibility to decide for himself or herself how much liability they are willing to incur, and it ought to be the individual’s responsibility to repay their borrowed funds. No matter the changes in the law, nor the effects they will have upon you, nothing changes this fundamental truth. If you know you won’t be capable of paying back a loan, don’t take one out.
However, as with the rest of life, shit happens.
A family member could get sick, a job could be lost or (for us college students) reckless spending on any number of miscellaneous items could contribute to defaulting on debts already accepted. Bankruptcy laws are intended to provide debtors (that’s you, the credit-card user) with legal protections in the case of their inability to successfully repay the money they owe. The goal is to simultaneously give honest individuals a “fresh start” while also disbursing some of the assets of the debtor to the creditors in an equitable manner, so that both are ultimately better off than if the debtor was simply thrown in jail.
Indeed, the very intent of the law itself is to protect debtors — allowing for the increased flow of capital to both individuals and businesses. Without such protections, individuals and businesses would likely be vastly more risk-averse for fear of retribution from their lenders, greatly influencing and detracting from the dynamism provided by a capitalist economic system.
The new bankruptcy bill, however, will greatly reduce the protections the government provides to debtors by forcing them, based upon income, from one type of bankruptcy into another. Chapter 7 filing involves the liquidation of debts through the distribution of the value of non-exempt assets to creditors and is generally the most common form of bankruptcy taken by an individual. Should the bill pass, however, individuals would then be required to pass a new “means test” in order to be eligible. If their income over the past six months was greater than the median income of their state of residence, they fail the test, and are not eligible to file for Chapter 7.
If this is the case, individual debtors will then be forced into filing for Chapter 13 instead, forcing them to make payments to creditors to repay non-discharged debt. While this is certainly a boon to credit card companies looking to protect their equity, it is not their interests that are in need of protection. Such a move would likely have a chilling effect upon the entrepreneurial spirit of American small business, as well as force individuals to reconsider how much ‘good debt’ they are willing to incur.
There has rarely, if ever, been a better time in American history to get credit, particularly through credit cards. Certainly, the difference in risk taken on by the average consumer through using a credit card, relative to that of the creditor, is overwhelming.
This is not a question of free markets and personal responsibility — this is a question of whose ox is gored. The law already provides these protections for debtors, and weakening them to score political points with massive financial institutions will only hurt the foundation of our capitalist system. In In politics, there are plenty of times when votes follow the money. In this case, almost three-quarters of the Senate have chosen financial institutions over individuals.
As college students, we ought to be particularly concerned with the progress of this bill. College students are ripe targets for predatory creditors looking to milk our disposable income for all its worth, foolishly slipping off into an abyss of debt.
There should be no doubt — the open flow of credit across America and the protection of all parties’ rights are absolutely vital. Both creditors and debtors are equally necessary in providing the pillars upon which our economy is situated. At the end of the day, when consumers cannot pay back a debt, both parties lose out.
For now, it seems as though Congress has decided that debtors ought to bear the greater burden. To all members of Congress, know this: the citizens of this nation are your creditors, and your debt to them will one day be due. Do not think for a second that we shall be as generous with our votes as credit-cards companies are with “free” money.
Because remember — There is no such thing as bankruptcy protection for political capital.
Zach Stern (zstern@badgerherald.com) is a senior majoring in political science.
Anonymous (March 17, 2005 @ 8:16am):
I actually agree with you for once. Mostly agree anyway. There is however only one solution to this problem. Do not get a credit card. YOu shouldn't b spending money you don't have anyway.
CC companies are completely unethical. They can raise your interst rate to 27% for no reason at all-even if you miss a payment on some other debt like a student loan.
CC companies are evil and this bill is a sham.
Anonymous (March 17, 2005 @ 8:19am):
One thing you coneveneiently "forgot" to mention Stern.
THIS BILL WAS SPONSORED BY REPUBLICANS.
You hide behind your typical weasel words and say "the house" and "congress". Why not admit that it was the Republicans that passed this bill and that Democrats tried to have provisions for military members who went bankrupt while in Iraq and the frigging evil republicans voted them down! Or didn't your conservative news source tell you that?
Anonymous (March 17, 2005 @ 8:42am):
Republicans helping credit card companies? Balderdash!
Anonymous (March 17, 2005 @ 9:20am):
"But let's get one thing straight -- we each accept credit at our own risk."
The first hit is free but once you're hooked the credit pushers will take over your whole life. JUST SAY NO!
This bill is definitely to allow the credit industry to recover from bad business practices. The credit industry encourages people to borrow money for frivolous spending with little regard for ability to repay.
What, are debtors' prisons and workhouses next?
Chapter 11 is where "Bankruptcy Abuse Prevention" is really needed. WorldCon and Enron are just the most egregious examples of recent "Bankruptcy Abuse" by companies.
Anonymous (March 17, 2005 @ 9:32am):
Yup. Once again Zach appears bipartisan, a bit reasonable, a bit of a straight up guy. I particualrly like his bit on citizens being politicians creditors. Good wording. Unfortunately, there are a few facts that Zach seems to gloss over.
The two leading causes of bankruptcies are major medical expenses incurred by families and small business owners. They are not credit cards. So what this bill did, and it was sponsored by Republicans, was shut down the entrepreneurial spirit in this country, and once again, shafted those without health insurance.
This is not a bill to trap those damn kids with their rampant consumerism. This is to trap the guy trying to start a bait and tackle shop in Eagle River. This is to get those huge HMO bills due by the Stevensons when their mom got breast cancer. This is a bill that hurts the red states more than the blue (what with the higher income levels and lower total levels of debt).
Obviously college students should not be running up huge credit card debt. That is common sense, we didn't need the threat of a new bankruptcy bill hanging over our heads to know that.
What we need to have a discussion on is why a) we hate small business owners and b) we want to screw further families with catastrophic medical costs.
-=Rob Deters=-
Anonymous (March 17, 2005 @ 9:37am):
OMG, is that really Deters? My agreeing with Deters may be one of the Signs that the end is near!
Anonymous (March 17, 2005 @ 10:36am):
We also need to ask ourselves when we will stop telling people who can afford things themselves that they need to incur others problems. It has to stop somewhere. Sympathy is great, helping people is great, but when it just turns into half the population supporting the other half, we have a problem.
I agree that it is a very sly idea passing a bill like this, but one also needs to look at how bankruptcy affects the rest of society. Why should I be responsible for someone else's problems every time something goes wrong? There needs to be some middle ground here. To allow someone to totally get out of debt is to let the person who committed a crime get away without punishment.
Anonymous (March 17, 2005 @ 11:14am):
"half the population supporting the other half, we have a problem"
The problem is that the credit card companies don't loan money only to people that they think will pay it back, they loan money to everyone, and charge enough to make money even if only some of the people pay.
The credit card companies are GAMBLING!! They're crying over bets that didn't pay off. Now they have the Congress changing the game to help them recover money they lost on their bad bets.
Anonymous (March 17, 2005 @ 11:29am):
I agree, but if they weren't giving money to everyone, people would be complaining about not being able to get ahead in life. But I guess CC companies should take a lot of the blame.
Anonymous (March 17, 2005 @ 12:38pm):
"...people would be complaining about not being able to get ahead in life."
Maybe, just maybe, they would spend some time trying to EARN money to spend, instead of spending money they don't have.
It ain't priceless folks, the price is debt slavery for the rest of your lives!
Anonymous (March 17, 2005 @ 2:46pm):
Here's a fun test--now that CC companies can be better assured of recouping more of their losses because of the bill, they will lower interest rates for everyone else, since one of their justification for high rates is to recover such losses. Right?
Right?
Hah.
Anonymous (March 17, 2005 @ 3:37pm):
"...they will lower interest rates for everyone else, since one of their justification for high rates is to recover such losses."
ROFLMAO
Anonymous (March 18, 2005 @ 8:11am):
Here's another thought...spending money you don't have and putting it on a credit card....I'll laugh at you! Don't spend something you don't have...or if you have to take out a loan...
Anonymous (March 18, 2005 @ 8:13am):
One reason they charge so much is because good consumers are bad customers. They don't spend more than they can pay off at months end, and the company makes no money. So the company is forced to rape the dumb consumer who spends money he doesn't have.
Anonymous (March 18, 2005 @ 4:37pm):
While the bankruptcy bill makes it harder for middle class families to declare bankruptcy, it's chock full of goodies for credit card companies and big businesses and rich folk that want to declare bankruptcy. Way to help those working families, guys.
Anonymous (March 18, 2005 @ 4:42pm):
Makes it harder, but still possible. We need to start deterring people from taking out loans and using credit they can't afford. The best way to do it is to show them they don't have something to fall back on.
Anonymous (March 18, 2005 @ 9:33pm):
"We need to start deterring people from taking out loans and using credit they can't afford."
Banks used to be more careful when loaning money and actually evaluated cash, credit, collateral and capacity. It was hard, next to impossible, to borrow money for frivolous expenditures. Now the credit card companies are pushing credit for vacations and unnecessary impulse buying to pump up their profits. They made some some bad bts and now they want government help to collect - I have no pity for them.
Anonymous (March 19, 2005 @ 12:15am):
But why do you have pity for those who borrowed? Is it the banks fault that some sap made an irresponsible decision and now they should pay for it? It's a great thing to offer people, so long as they don't abuse it. It is the people who abuse it who ruin it for everyone else.
Anonymous (March 19, 2005 @ 10:49am):
"It is the people who abuse it who ruin it for everyone else."
I guess you could say that same thing about crack and heroin.
Pity may be the wrong word - I just don't see that the credit pushers should get bailed out of the mess that they created by new laws.
Anonymous (March 19, 2005 @ 8:17pm):
Republicans looking out for big business at the expense of actual citizens? Unthinkable!
Anonymous (March 19, 2005 @ 10:18pm):
"It is the people who abuse it who ruin it for everyone else."
It is the people who abuse it who make credit card companies even remotely profitable.
Anonymous (March 20, 2005 @ 10:05am):
Liberals looking to give people a free ride instead of calling for personal responsibility? Never!!! This is an issue of responsibility...no one would be hurt by the law if people made responsible decisions and stood by their actions. I shouldn't pay off your debt when you go bankrupt...it's asinine.
Anonymous (March 20, 2005 @ 12:20pm):
"I shouldn't pay off your debt when you go bankrupt...it's asinine."
Chapter 7 personal bankrupts are pikers - look to WorldCon, Enron and all the other Chapter 11 bankrupts if you want to what's costing you money.
Anonymous (March 26, 2005 @ 9:19am):
"Liberals looking to give people a free ride instead of calling for personal responsibility? Never!!! This is an issue of responsibility...no one would be hurt by the law if people made responsible decisions and stood by their actions."
CC companies can raise rates up to 28% without notice for any reason. This has nothing to with people making bad decisions or getting free rides.
Under this bill people who go bankrupt for healthcare costs are treated the same as people who rack up thousands for Gucci purses.
I suppose cancer patients just shouldn't get cancer?
Republicans plan for the non-uber rich : Want to take away healthcare support in case of catastrophe and then penalize your relatives who are unable to pay your bills after you die.
Good looking party! Keep it up you evil fuckers.
Anonymous (February 13, 2006 @ 1:24pm):
if u take me to america, i will pay u back with interested
