Sunday, August 21, 2005

Bankruptcy law ... This past spring, a congressional debate over federal bankrutpcy laws prompted a fair amount of commentary throughout the blogosphere -- most notably by Elizabeth Warren at TPM's old bankruptcy blog (now the Warren Report at tpmcafe).

At the time I stayed away from the debate, partly because I was still in Europe, but even more because I didn't feel like I knew enough about the minutiae of bankruptcy law to say anything insightful.

Frankly, I still don't. But today's lead story in the Times is about the practical effects of the bankruptcy law that was passed, and about that more experiential question I do have something to say. My family filed for bankruptcy when I was in high school. I know firsthand the frustration and shame it brings: to be bankrupt is to have been either profligate or unsuccessful, and in a society as heavily commercial as ours, either is considered a grave transgression.

Yet such stigmatization ignores, on the one hand, the necessity of risk within capitalism, and, on the other, the increasing role that credit has come to play in our health care system. Again, I'm not qualified to talk about the former, but I can speak on the latter. After several years of paying down either medical or credit card bills (but never both), we finally had no choice. Bankruptcy was the only way out.

It's no surprise to me that several of the families profiled in the Times article went through similar ordeals -- neither profligate nor unsuccessful, just unlucky. They used credit cards to get by during a medical crisis, and ultimately they were burned for it.

By making bankruptcy law even tougher to secure, Congress has both further privatized risk and made bankruptcy in general even more of a forbidden sin than it was; all I can hope is that the media will continue to report on the effects of the new bankruptcy laws, and that Congress will eventually be "shamed" into revoking the revisions they've made.

But, sadly, somehow I doubt that that will happen.


Update: One more point. Credit companies love consumers with poor credit reports because they can charge them higher interest rates and thus generate greater profits. The reason they are able to charge higher rates is that the consumer's poor credit indicates to the company that there is a greater risk of the consumer defaulting on the loan. Yet Congress' revision essentially allows companies to have their cake and eat it too: they can charge the same high rates even though they've now been shielded from more of the risk. Good news if you work for a credit card company, bad news if you're a middle or lower class family whose insurance won't cover the full costs of an unexpected medical or financial crisis.

1 Comments:

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1:24 PM  

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