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| | Bankruptcy reform more sickly Washington legislation
Saturday, Mar 19, 2005 By Wesley Brown Don't get sick. That is the message that Americans are taking away from a recent Harvard University study and new federal bankruptcy reforms. Earlier this month, the Senate passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The bill, which was mostly drafted by the banking and credit card industry, will make it harder to file for Chapter 7 bankruptcy, which allows consumers to walk away from debts without paying very much. The new law will force more bankruptcy filers to seek Chapter 13 protection, a debt restructuring program that allows creditors and debtors to work out a payment plan. The bill is expected to breeze through the U.S. House and be quickly signed by President Bush, who has expressed his support for the legislation. Arkansas' two Democratic senators, Blanche Lincoln and Mark Pryor, have received criticism from party faithful for voting for the measure. In explaining her reasoning for supporting the bill, Lincoln said it would curtail manipulation of bankruptcy laws by making it more difficult for wealthy folks to completely eliminate debt by filing for bankruptcy. "There was a time when the stigma attached to bankruptcy was bad enough that people went out of their way to avoid it," Lincoln said after the 74-25 vote. "Today, the evidence shows that bankruptcy proceedings are being manipulated by some to avoid debts even when they have the ability to pay. That's just wrong. Unfortunately, lenders have to be protected by laws when there is no honor." However, some critics of the legislation say that while it offers ample protection for banks and credit card companies, it does nothing to help working people in debt. Others say that it will actually shelter the wealthy debtors rather than punish them. "This is not where we as Democrats ought to be, for crying out loud," Sen. Tom Harkin, D-Iowa, said in one news account about the 18 Democrats who voted for the bill. "We are making a terrible mistake by thinking that we can have it both ways." And unlike much of the testimony that helped ease the bill through the Senate, credit card debt is not the major cause of personal bankruptcies, according to a recent study. Illness and medical bills caused 50.4 percent of the 1,458,000 personal bankruptcies in 2001, says a Feb. 2 report published by the Harvard Medical and Law schools. The study estimates that most of the medical bankruptcy filers were middle class, 56 percent owned a home and the same number had attended college. In many cases, illness forced breadwinners to take time off from work - losing income and job-based health insurance precisely when families needed it most. A large number of families in bankruptcy also have to suffer many other hardships, such as having their utilities cut off and going without needed medical care. The Harvard study also points out that 45 million Americans are uninsured with the overwhelming majority finding coverage unaffordable or unavailable. Secondly, many health insurance policies prove to be too skimpy in the face of serious illness. "Many insured families are bankrupted by medical expenses well below the 'catastrophic' thresholds of high-deductible plans that are increasingly popular with employers," the study says. Finally, the report says that even good employment-based coverage sometimes fails to protect families because illness may lead to job loss and the subsequent loss of coverage. Of course, that leaves families without health coverage when they are "financially most vulnerable," the report says. "Unless you're Bill Gates you're just one serious illness away from bankruptcy," says Dr. David Himmelstein, the lead author of the study and an associate professor of medicine at Harvard. Unlike those who think most working people file bankruptcy just to get out of paying credit card debt, the Harvard study points out otherwise. Unfortunately, like a lot of legislation that comes out of Washington, D.C., the new bankruptcy reform bill will actually hinder those that lawmakers say it will help. It doesn't take a genius to know that this bill simply gives a tool to predatory debt collectors and overzealous bank and credit card companies who dole out new cards like free money. ------ Wesley Brown is business editor for the Arkansas News Bureau in Little Rock. His e-mail address is wbrown@arkansasnews.com. |
