Thursday, March 10, 2005

 

The Whole Bankruptcy Bill Thing

I've been waiting to write this piece for about a week or so, but just haven't gotten around to it. That, and I'm still not sure which side of the issue I stand. That's unusual. And what's even more unusual is the reaction of the left and right. Compare the comments in a thread on Daily Kos to that on Free Republic, and you'll see similar reactions and thoughts on both. Scary.

My first instinct is to think that this is yet another handout to the credit-card industry that will allow them to continue offering credit to poor risks, while insulating them from the negative effects of their business practices. And that's probably a dead-on accurate statement. This would seem to establish that credit-card companies are evil and are constantly handing-out money to politicians in Washington - politicians on both sides of the aisle. Not exactly ground-breaking stuff here.

But then again, in order for this whole credit thing to work, individuals actually have to accept the credit offer. Last I checked, no one in this country was really forced to take out a loan or line of credit larger than they could afford. Oh, sure, there's plenty of folks who will justify a 60-month loan on a new $35K car instead of buying a quality $10K used car because "they need a warranty" or "don't want to get ripped-off on used-car interest rates", or those that take out interest-only loans on a huge new home because "the kids are running out of room" and they're just positive that they're going to get a raise next year, or a spouse will return to work, or a previous property will sell, or... you get the point.

So, who's really to blame here for the credit problems we have in this country? I gotta come down on individuals here and blame them for the poor decisions that are being made every day. Big, evil corporations will do mean things to the public, but when it all comes down to it, we often have only ourselves to blame. I mean, shit, even thought the CC company sends you a shiny piece of junk mail promising Low Introductory APR, doesn't meant that you've got to respond like a slobbering dog. This isn't much differen than Joe Camel, and that bastard never convinced me to so much as take a single puff.

And while a significant number of bankruptcies are triggered by circumstances outside of one's control, I've got little doubt that many of those people set themselves up for disaster. Sure, a medical problem puts someone over the brink, but it's rarely mentioned that before the $50K hospital bill came along, there was a new home or two, maybe some big vacations put on a credit car, and a couple of shiny new vehicles put in the driveway that are really at the root of the problem. All that money spent on Lexus depreciation and property taxes might have gone into savings instead and averted disaster when the unexpected happened.

The problem I see with current bankruptcy law is indeed that it allows people to make poor decisions and then wipe the slate clean. The new law seems to shift the balance of power toward's the leading industry's stupidity. It seems to me that a balance needs to be struck somewhere in-between, when bankruptcy offers some protection of one's home and vehicles while still making provisions for repayment of debt.

We also need to do something about corporate bankruptcy, which the lending industry seems reluctant to address - probably because it'd reveal so much about their stupidity (or at least their tolerance for risk). After all, the lending industry lost about $10B during the Enron collapse.

Finally, I think that setting proper health savings accounts, rather than the use-it-or-loose-it crap that most people are faced with, would help those that are really interested in protecting themselves against an expensive emergency medical crisis. Generally speaking, more saving and less borrowing would solve the problem. But people are reluctant to do so without tax breaks.

UPDATE: Some good reading on bankruptcy statistics can be found here.

UPDATE 2: Looking back through some older links on the topic (I've been collecting them for a few weeks), I found this info:

Under the proposed law, those filing for bankruptcy would have to undergo a two-step test outlined in a formula that permits judges little leeway. It would force an estimated 30,000 to 100,000 people a year who now seek protection under Chapter 7 to instead make some repayment under Chapter 13.

That seems like an awfully small impact, considering that at the rate of about 5 personal bankruptcies per 1000, there's about 1.5 million per year in the US. I'd like to see if that's an accurate number, or if it's understated.

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