WASHINGTON (ABP) — A bill that would make it much more difficult for many middle-income Americans to get out of debt appeared on its way to passage in the Senate March 10.
The “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” was widely expected to pass the Senate after Republicans turned back a number of Democratic-sponsored amendments that would have softened the legislation's impact on working- and middle-class households that file for bankruptcy.
If the bill becomes law, many of those who now have their debts erased by filing for protection under Chapter 7 of the bankruptcy codes would instead have to file under Chapter 13, meaning they would be expected to repay many more of the debts they owe.
Although the credit-card and financial-services industries have been pushing for such legislation for almost eight years, it has not made it out of Congress.
The bill addresses a real problem, according to supporters. “A lot of people are using bankruptcy as a way to avoid paying their just debts,” said Sen. Jeff Sessions (R-Ala.) in floor debate on the bill. “There was a lot of concern that something is out of sync, that the classic American moral value that you ought to pay your debts if you can ought to be honored.”
But opponents of the bill said passing the bill while rejecting amendments designed to ask for more accountability from credit-card companies is immoral.
“The bill is not a fair bill. I would have asked the credit-card industry demanding this bill: 'How are you doing? How is your industry doing? Making a profit?'” said Sen. Richard Durbin (D-Ill.), noting that the credit-card industry made a record profit in 2003.
He told stories about friends whose toddler-aged children had received credit-card offers in the mail. “Supporters of this bill rail against irresponsible consumers. What about irresponsible lenders? In the entire bill, there is nothing that tells the credit-card companies: 'If you are really worried about your losses, exercise better judgment about to whom you lend money,'” Durbin said.
A group of 70 Christians who are members of the National Association of Consumer Bankruptcy Attorneys took the rhetoric a step further, sending an open letter to religious leaders March 1 that said the bill violates biblical principles.
“In the view of the creditors who have drafted and lobbied for the current Senate bill, it is the repayment of debt that is the most paramount duty of humans,” the letter read. “Under God's plan in the Old Testament, it was the creditor who was given the onerous commandment to lend and to give, not the debtor who was punished because he could not repay.
“Faced with declining real wages, job insecurity, long-term unemployment, out-sourcing of jobs to overseas markets, and ever-rising health-care costs, American families have turned to increasingly expensive easy credit,” the letter continued. “Yet, with the prime rate at its lowest level in more than 50 years, the credit-card banks have issued new cards to millions of American families at the highest annual interest rates in history. The current bill imposes no limitations on these exorbitant and usurious fees and charges.
But a Christian economist who supports a free-market view of economics said it wasn't that simple a picture. The more strenuous Chapter 13 bankruptcy “still provides you with relief; it just requires you to repay your debts on a pre-determined schedule,” said James Sherk, an economics fellow with the Evangel Society journal. He noted that the bill would still allow any bankruptcy filer making under the median income for his or her state to file under the more lenient Chapter 7 rules.
And Sherk said Democrats and bankruptcy attorneys shouldn't expect the credit-card industry to bear the moral responsibility for families filing for bankruptcy. “I'm not sure how it's the credit-card company's fault. They present you with all the terms of the deal at the beginning,” he said.
Besides, he said, credit-card companies charge higher interest rates and fees in part because of unclaimed debt lost due to Chapter 7 bankruptcies. More than a million households file for bankruptcy per year now — more than a tenfold increase in the 25 years since the last major reform in bankruptcy law.
“Currently, credit-card rates are higher than they would otherwise be because the credit-card companies have to factor in the cost of bankruptcy,” Sherk said. “So everyone who doesn't declare bankruptcy has to pay in the form of higher rates.”
And though he understands the arguments of those who see easy credit as an epidemic and want to impose more regulation on the credit-card industry, Sherk said, “We live in a society — in an economy — that allows people to make their own choices, and I think the benefits of that far outweigh the costs.”
The bill is S. 256. House leaders have promised to take it up quickly if the Senate passes it without amendment, and it is expected to pass that chamber and be signed into law by President Bush.