Needed: Richer Debtors
The first reports on the new bankruptcy law are trickling in, and they are embarrassing those who said that bankruptcy was loaded with deadbeats. The new law requires everyone–no matter the reason for filing bankruptcy and no matter how low their incomes–must take a credit counseling session before they can file for bankruptcy. The idea was to pressure those who could repay their debts into debt management plans and away from bankruptcy.
But who is showing up for credit counseling? A new report from the Washington Post this morning says that credit counselors report that most of the people who come to them before filing for bankruptcy are in terrible financial shape, “people with true hardship, such as lost jobs or disabilities that cut their incomes.” According to a credit counseling spokesman, “virtually none” qualified to pay anything. Many couldn’t even afford the $20-75 counseling fee.
Could this mean that the advocates of the bankruptcy bill–the ones who asserted that the system was rife with abuse–were wrong?
No, says the industry’s chief lobbyist. The Post quotes Phil Corwin who spearheaded the lobbying effort for the American Bankers Association. He says that the consumers filing now are “the poorest of the poor . . . not a fully representative sample of the filers.” In other words, the industry will be vindicated as soon as all those rich debtors start trying to file for bankruptcy.
It is clear that the system hasn’t yet settled down after the huge spike in filings just before the law took effect October 17, 2005. And it is entirely possible that the first filers in 2006 look different from those who weren’t savvy enough to file last October. It is also possible that the new law will keep lots of people from filing. But it is worth noting that the stories these early debtors tell are the same ones that the academic researchers were finding before the new law took effect: job losses and medical problems drive the bankruptcy decision for most families.
For now, credit counseling is exactly what the opponents of the bill predicted–a device to delay and to drive up the costs of bankruptcy protection for the very poorest people.
If Lobbyist Corwin thinks the “poorest of the poor” are the only ones trying to file for bankruptcy right now, then why not give them a break once they have passed the credit counseling screen–how about an exemption from all the new provisions of the bankruptcy laws?
How long will the “poorest of the poor” still have to pay the freight for the mythical rich debtors who were abusing the bankruptcy system?
