Call to Action: U.S. Senate to Pass New Bankruptcy Law that Preys on the Poor and Gives to the Rich

This week the credit card
industry – which raked in $30 billion in
profits last year – storms the Congress in an attempt to squeeze a few more
dimes from Americans who are sick or out of work. Starting today the Senate will
consider a bill (S.
256) that would amend bankruptcy law to “make it harder for families struck
by financial misfortune to get back on track.” (Nine out of 10 bankruptcies “are
triggered by the loss of a job,
high medical bills or divorce.) The bill is supported in Congress by a bipartisan
coalition on the credit industry dole. They think they can pass the bill
without the American people noticing. Prove them wrong. Write
your senators and tell them to reject the legislation in its current
form.

MORE UNNECESSARY
BUREAUCRACY: The bankruptcy bill is an attempt to prevent people from filing
Chapter 7 bankruptcy – which gives people a clean slate – and make them file
under Chapter 13, which requires continued payments to the credit card
companies. In order to qualify for Chapter 7, Americans would be forced to
complete a costly and
bureaucratic means test. This additional red tape is almost completely
unnecessary. According to a study commissioned by the nonpartisan American
Bankruptcy Institute, 96.4 percent of people who
file Chapter 7 can't afford to pay anything more. The real intent of the
legislation is not to prevent people from abusing the system but to make it so
burdensome to become eligible for Chapter 7 that people who would qualify can't
afford it.

LIKE TAKING MONEY FROM A
BABY: There is seemingly no limit to the depths to which the credit industry
will go to seek an extra buck. The bill they are trying to push through Congress
threatens the
welfare of children by endangering child support. If a custodial parent is
owed child support from someone declaring bankruptcy, the parent will be forced
to fight with other creditors (like auto lenders) for the debtor's limited
income – even after the bankruptcy is completed.

GIVING MILLIONAIRES A
PASS: The bill
on the Senate floor right now doesn't
stop some of the worst abuses of our bankruptcy system. In several states –
including the president's home in Texas – a multimillionaire can declare
bankruptcy, avoid his debts, and still keep his palatial estate. We've seen
it happen time and again: for example, “Marvin Warner, a former ambassador to
Switzerland and the owner of a failed Ohio Savings & Loan, who paid off only
a fraction of $300 million in bankruptcy claims while keeping his
multi-million-dollar horse ranch near Ocala, Florida.” Another example: “Dallas
developer, Talmadge Wayne Tinsley, who filed under chapter 7 after incurring $60
million in debts. Tinsley objected to the Texas law that permitted him to keep
only one acre of his $3.5 million, 3.1-acre magnolia-lined estate. But that acre
included a five-bedroom, six-and-a-half-bath mansion with two studies, a pool
and a guest house.” The 2001 bankruptcy bill at least stopped these abuses by
capping the so-called “homestead exemption” at $125,000. This bill has a
complicated exemption that will allow “wealthy debtors who are sophisticated
enough to plan ahead – and those are, after all, the people we are talking about
– can purchase a homestead to shelter their non-exempt assets and simply wait
[49 months] before filing their petition.” (Share your thoughts about the
bankruptcy bill on ThinkProgress.org)

THE WRONG BILL AT THE
WRONG TIME: The bill, which would make it harder for people to recover from
financial problems, comes at exactly the wrong time. More Americans families are
struggling because median income is stagnant, health care
costs are skyrocketing, college
tuition has exploded and child
care costs are up. Once families are hit with big medical bills or family
members lose their jobs, bankruptcy is often their only option. (For more on
this issue, see this American
Progress report.)