Sargent on Bankruptcy Reform

Here is an essay by our fearless leader, Mark Sargent, on the recent bankruptcy-reform legislation, taken from the current issue of Commonweal.  Mark writes:

[The new law's aim] is to make it more difficult for individuals to declare bankruptcy under Chapter 7 of the Bankruptcy Code-under which all eligible assets are sold to pay off debt, and whatever amount can’t be repaid is discharged-especially if a debtor’s income is higher than the state median. In addition, the law will require many debtors to pay higher legal fees and agree to a court-ordered repayment plan under Chapter 13 rather than have their debts discharged completely in a nonjudicial proceeding. On the face of it, this seems sensible. But is it really? That depends on whether the Act has accurately identified bankruptcy “abuse” as the problem, and addressed it both equitably and effectively. . . .

The real issue not addressed by the Act is how the credit-card industry shamelessly pushes credit on people who shouldn’t have it. The industry seduces those people into late payments and defaults because, even if some borrowers default, profits still accrue through escalating late fees, penalties, and other charges. The industry can absorb the defaults because it can extract so much money from those still paying, and from those new borrowers their marketing machines continue to produce. That is the endless cycle of debt creation, and the real problem Congress must address.

Rick