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March 10, 2005

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» The Emerging Blog Consensus: jwo;e892jlsdf - Indeed from Pandagon
I'd been wondering why the bankruptcy bill passed. In what is technically a democracy, a bill that more-than-theoretically screws a great number of American consumers should have horrible incentives attached for passage. The problem is, like a lot of l... [Read More]

» Opposistion Grows Against the New Bankruptcy Givea from HCS's Pad
wow has this thing exploded. I knew the bankruptcy bill was bad but i did not know how bad. Politology has a nice post and informative post about hte effort to get a blog swarm started on this one. the opposistion crosses both liberal blogs and co... [Read More]

» Bankruptcy Protest: A Coalition from Politology
The opposition against the bankruptcy bill crosses party lines, among the grassroots. The support for the bankruptcy bill crosses party lines among Congress. This is clearly an example where the interests of Congress are divorced from the interests of ... [Read More]

» Bankruptcy Protest: A Coalition from Politology
The opposition against the bankruptcy bill crosses party lines, among the grassroots. The support for the bankruptcy bill crosses party lines among Congress. This is clearly an example where the interests of Congress are divorced from the interests of ... [Read More]

» new bankruptcy bill - thanks congress from Gibbie's Bioscience World
for peddling to the commercial banks and credit card companies who bear a huge responsibility for the increasing number of personal bankruptcies. Everyone i've read says this is a bad, or terrible, or diabolical bill. Even bankruptcy attorneys, who s... [Read More]

» new bankruptcy bill - thanks congress from Gibbie's Bioscience World
for peddling to the commercial banks and credit card companies who bear a huge responsibility for the increasing number of personal bankruptcies. Everyone i've read says this is a bad, or terrible, or diabolical bill. Even bankruptcy attorneys, who s... [Read More]

» People's solidarity against the bankruptcy bill from mediagirl.org

Nobody likes class warfare -- especially when it's the corporate class against the lesser "people" (aka "citizens") recognized by our government.

The dissent across party lines and political [Read More]

» Bankruptcy from Pete The Elder
The blogosphere is all in a twitter over the bankruptcy bill currently in congress. I have very mixed feelings about the bill. Redstate.org has several reasons for opposing the bill: “It's already plenty difficult to declare bankruptcy for the averag... [Read More]

» Bankruptcy from Pete The Elder
The blogosphere is all in a twitter over the bankruptcy bill currently in congress. I have very mixed feelings about the bill. Redstate.org has several reasons for opposing the bill: “It's already plenty difficult to declare bankruptcy for the averag... [Read More]

» Bandwagoning from Who Can Really Say?
Onto the bandwagon I jump.... [Read More]

» Miscellanea: When Bumper Stickers Kill Edition from Decision '08
Both sides of the blogosphere are up in arms about the new bankruptcy bill nearing final passage, and I'm not too thrilled with it either. Tom Maguire has all the good links... [Read More]

» On The MultiPartisan Blogosphere from Politology
Excuse a "meta" post before we get back to the bankruptcy action. It's been a pretty active day - this weblog didn't exist a few days ago, and today it was mentioned live on two cable tv shows and a... [Read More]

» The Bankrupt Bankruptcy Bill from Ryne McClaren: A Weblog
Tom Maguire is the man who asks "Where's the blogosphere?" when it comes to the idiotic and shameful bankruptcy bill that's about to sail through. He has many good points to ponder here, including some thoughts on how this massively [Read More]

» The Bankrupt Bankruptcy Bill from Ryne McClaren: A Weblog
Tom Maguire is the man who asks "Where's the blogosphere?" when it comes to the idiotic and shameful bankruptcy bill that's about to sail through Congress. He has many good points to ponder here, including some thoughts on how this [Read More]

» On The MultiPartisan Blogosphere from Politology
Excuse a "meta" post before we get back to the bankruptcy action. It's been a pretty active day - this weblog didn't exist a few days ago, and today it was mentioned live on two cable tv shows and a... [Read More]

» Yuppie Rage from Centerfield
This blog is split on the bankruptcy bill, as I continue to support it, while others have jumped aboard the opposition train. While the emerging consensus among bloggers seems to be that it's a bad bill, the newswire description of... [Read More]

» Yuppie Rage from Centerfield
This blog is split on the bankruptcy bill, as I continue to support it, while others have jumped aboard the opposition train. While the emerging consensus among bloggers seems to be that it's a bad bill, the newswire description of... [Read More]

» This could be a first from Conservative Friends
Well, it seems that for the first time, I find myself running against most major bloggers. Everyone seems to be up in arms about the new bankruptcy bill. Frankly, I have to ask myself why? Atrios is actually in agreement with Free Republic on this,... [Read More]

» Bankruptcy in the Blogosphere from Stromata Blog
Like Gail Heriot at the Right Coast, I haven’t read the bankruptcy bill that just passed the Senate, nor do I pretend to expertise in that field. When I took a bankruptcy course in law school, the 1898 Act was [Read More]

» Bankruptcy blog bingo from PointOfLaw Forum
Megan McArdle, Just One Minute and Glenn Reynolds don't like the consumer bankruptcy bill now moving through Congress, but Tom Veal, Slithery D and Todd Zywicki take issue with them.... [Read More]

Comments

toby928

I've got to disagree with you guys. In this case, financial dealings are pretty simple; don't spend what you can't afford, don't borrow what you can't pay back, and don't go bankrupt when you have the ability to pay, even if its hard. In moral terms, stand by your word. What else is the measure of a man?

Toby

Jos Bleau

"One possible explanation - too many stories."

Its really the other way around, I think. I know I'm cynical, but I see very few stories in the media that don't look like low-value added press releases from various interest groups, nudged along with partisan help.

In this case, since the Dems themselves were split (or maybe just half of them were bought) and the folks for debtors relief don't have the central office or publicity skills of, say, the Brady anti-gun campaign, there were no pre-digested, just-remember-to-put-your own-byline-on-our-spin materials out there that created the right kind of morality play, this story more or less did not exist.

Or - this was an enterprise story where reporters and editors had to all the heavy lifting with no pre-digested spin or pre-set template to fit everything to. And they showed about as much enterprise as I've some to expect ...

Compare the coverage of this bill to, say, the Terror-Suspects-Can-Buy-Guns-Oh-My!!!! story from earlier this week.

Toby928

Tobias Took: thread killer

Ron

I gotta say, on first sniff I agree with Toby. Nobody's putting a gun to people's heads & forcing them to assume debt they can't afford. I myself only have one credit card from each of the major issuers and only use them when I have to. I find living a cash-only lifestyle, while possibly limiting, is actually quite liberating.

As to the other upcoming bills, why shouldn't med-mal & asbestos litigation be reformed? Talk about people taking advantage of the weak-willed in our society...

Carl F

The blogosphere matched the mainstream media in aimless partisan inanity on the topic of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 or S.256IS.

The first and most critical problem is this comment is one of the few places, on the web or in print, where you will find the name and the number of this legislation. So, even if the New York Times or Atrios' call to arms so stirred me to action, I couldn't call my Senator because I'm never told the name or number of the bill I'm supposed to be opposing.

The other reason, I suspect, that the blogosphere was just as impotent as the MSM on this issue is the argument on most blogs matched the inane irrelevant arguments in most MSM articles. The argument that credit card companies make a lot of money, especially on late payment and over-limit fees, and that millionaires have loopholes are not very compelling reasons for the average blog reader to oppose this bankruptcy reform bill.

A reasoned analysis with commentary on the merits of the bill would've been much more effective at letting readers know WHY they should oppose the legislation.

steve sturm

Toby hits it on the head. The blogosphere didn't get any traction on this issue because this is a non-issue to most of America (at least those who, as Toby says, spends only what they can afford...). This issue wasn't going to influence a Presidential election, it wasn't about what a Senate Majority Leader said, it wasn't about a slur on the US military.

As the old saying goes: the blogosphere can lead the public to a story, but we can't make them care.

Full commentary here

Fred

I didn't write on it because of all the things you could fix about the bankruptcy system, this one will likely have the least real impact. Now if Congress would get around to addressing the extortion-in-all-but-name abuse of Section 547 of the Bankruptcy Code (which purports to protect creditors from improper transfers of funds pre-petition to other creditors, but which really allows massive wealth transfers from unsecured creditors to bankruptcy attorneys), that would have a real impact on the economy.

TM

Good points by Carl F and Steve Sturm. Here is a link to the bill.

This was interesting, too - a little background on The National Bankruptcy Review Commission.

It proves nothing, of course, but it is worth remembering that Congress has kicked this around for years. Upsetting that kind of apple cart is not easy.

TM

The ABA is opposed to the requirement that lawyers certify their clients financial representations.

TM

Lots of (oppo) links at the American Bankruptcy Institute.

Anyone who can find the pro-reform case (which I assume can be made), leave a link, please.

gt

Toby,

I generally agree. Except that when you see the GOP passing this bill but voting down amemdments to kill the loopholes, like the asset protection trusts, that allow the wealthy to keep money even in bankruptcy I can't help but wonder, why?

Ron

Well, in a great case of unitended consequences, if the ABA is against it then I am most likely to support it.

Also, as touched on by others earlier, I have yet to see a detailed critical analysis of why this is a bad bill. The only thing anyone says is "the credit card companies make tons of money". Well, those of us on the right are supposed to believe in capitalism, aren't we?

creepy irish dude

Toby928 says: "... and don't go bankrupt when you have the ability to pay, even if its hard. In moral terms, stand by your word. What else is the measure of a man?"

Hey Toby, go post this advice in one of TM's post on social security reform!

gt

Creepy, that's good!

;)

Toby928

CID, Is that agreement or disagreement?
Tob

creepy irish dude

Total Agreement Toby-In fact you've solved the whole SS crisis.

All the government has to do is charge SS payments to a credit card.

The the SS Administration can never declare bankruptcy!

And the Republicans have already voted their approval of this plan!

Toby928

CID, I'm sorry, is that english your typing? Read my post again and make an actual comment, or attach a smiley if its humor ;-) 'cause it just don't parse.

Tobias Took: thread killer

creepy irish dude

Ummm...see if you can figure this out:

My comment
________________

Your head

Toby928

CID, so should I read your comments to be an endorsment of 'welsching'. ;-) Your point re the government is right despite yourself. The SSA (really the politicians) has promised more than it can pay. All the current reform proposals that I can see, ARE a form of bankruptcy. Maybe that will have to happen but I don't like it at all.

Tob

TM

I can't help but wonder, why?

From newspaper accounts, a couple of points emerge - first, hte House-Senate dealwas that if the Senate passed the bill as-is, the House would, too. This saves a potentially gruesome conference.

Second, this bill has been around for eight years, which is longer than the asset-protecytion trust scheme (folks used to go offshore for that kind of protection).

Third, the asset-protection trusts are not exactly driving the default rate in the credit card industry. Per the Times, they are doctors shielding assets from malpractice, and corporate directors worried about Sarbanes/Oxley.

Maybe those issues should be addressed, but a better bill would be a comprehensive look at malpractice reform, or corporate oversight.

Put another way, going after these trusts is fun, populist grandstanding, but has nothing to do with most abusive bankruptices (I bet). And not much to do with the history of this bill over the last few years, either - as a fun way to demogagoge against it, and bog it down with amendments, sure; but let's not confuse tactics with substance.

AggravatedDocSurg

It is fascinating to see the hue and cry over this bill, predominantly because the hubub is coming primarily from attorneys. While there has been some support amongst the blogosphere attorneys for medical malpractice and tort reform (which are a much more important issue for the counry), certainly I have not seen a call for a "cross-blog coalition" to fight for it.

Crank

Well, I got the Last Alliance reference. Are you suggesting we will live to regret not casting Lott into a volcano while we had the chance?

Toby928

TM, excellent points on the need for comprehensive reform, but I wonder; in the 'evenly-split' partisan environment was a better, more comprehensive bill possible? Is this a case of the best-we-could-get? I tend to think that too much sunlight on this sausage would have led to no reform at all. Would that have been better? beats me.
Tob

Robert Musil

Tom,

I view this widespread cross-blogosphere virtual coalition against the bankruptcy reform bill as an anthropological curiosity - and a sort of reprise of the blogosphere's widespread support for Lessig's bizarre constitutional assault on the Bono Act, which extended the life of copyright terms. And I think the current agreement is just as wrong-headed as the prior one. As so often the case, when so many people of such different political stipes join together in bipartisan agreement, one knows they're almost certainly seriously wrong. In fact, the blogospherian resistance effort in both cases has a lot in common with the dancing crazes and mass self-flagellation displays of the middle ages. Why does this kind of thing happen? Is there a virtual hallucinogenic fungus in the system that periodically affects so many otherwise sound minds?

Consider the objections expressed by normally level-headed InstaPundit. We are to believe that much personal bankruptcy is caused by tortious infliction of credit by scammers. OK, but even if that is correct, the "scammed" are wronged regardless of whether they have to resort to bankruptcy. There's no good reason why somebody who manages to scrape together the resources to pay off a "scammer" should be treated differently than someone who elects to throw in the towel. So the proper remedies are to be found (or enacted) in consumer protection laws that apply regardless of bankruptcy of the debtor. Whatever those remedies are, they should remain available in bankruptcy - but there's no good reason for the law to set off a nuclear bomb of total discharge just because the debtor gets into credit trouble. Actually, my sense is that "scamming" is not a major problem (although gambling addiction may be - and may be getting worse).

The other objections to the pending bill that I have seen are similarly flimsy - although maybe not as completely nutty as Lessig's old constitutional anti-Bono Act rants. I gather he’s still in continuous depression over those – to the point where Richard Posner has actually had to publish articles telling him to cheer up. I hope that the collective hang over from the anti-bankruptcy-bill bender is not that bad!

gt

Tom,

Over at Jane Galt's she linked to a bankruptcy lawyer who says that in his experience there is little to no bankruptcy abuse. Yes, it's just his opinion but although I keep hearing about this abuse I haven't seen much proof of it.

The reason I point out the loopholes is that it is the position of Republicans and conservatives that people should be more responsible for their actions. The counter argument has been that the GOP does not seek to make all equally responsible and consistently votes or allows loopholes that benefit the wealthy. This is a perfect example.

If the GOP really believed that they stand for personal responsibilty surely it would be slam dunk to approve an amendment that limits abouse of bankruptcy by the rich in a bill that seeks to generally limit abuse of bankruptcy.

It's hard to look at the facts in this case and not conclude that those that talk of class warfare by the Right are correct.

random m

I'm a bankruptcy attorney.

First, is everyone aware there are two personal bankruptcies to choose from? One is a chapter 7 "wipe everything out" the other is a chapter 13 "pay at least part of the debt back"? This is already the case. What the Credit card companies want to do is force more people into 13's. The success rate (make it to the end and get the discharge of debt) for 13's in my state is 20%. Forcing more people into 13's isn't going to up the success rate. We'll just end up with more people perpetually in chapter 13 bankruptcy. Priority debt like attorney fees, court fees, taxes and secured debt already gets paid early on in a 13 which means the credit cards have to wait till the latter years to get anything. Repeat 13s where someone starts but cannot finish so starts again a 13 are already common. I think the credit card companies are going to be disappointed by the result of this law. Meanwhile, who will be getting the squeezed out pennnies? The court, the bankruptcy attorneys and mortgage or car financers. (Yet oddly enough most bankruptcy attorneys hate this bill.)

As for living within your means-good point. But the overwhelming majority of those who come walking through my door really can't pay. Most have been struggling for years. They'll be recovering from something like high medical expenses and then someone gets laid off. They'll get re-employed but in the meantime got behind and the interest rates soar, the late fees and other penalties have been tacked on and they realize they can't make it.

I've seen grown men tear up in the agony of not being able to support their family and pay their debt. The emabarrassment and shame so many feel is almost overwhelming. Many that come in could have come in one or two years earlier but didn't want to admit defeat. Second or even third jobs, taking out other loans to make the payments on the first, not taking medication they need-I've seen all this.

Let the credit cards be more reasonable in working with people and stop hiking up interest rates at the drop of a hat and bankruptcies will go down. So many try to work out something and the 32% interest rate credit card (that used to be a decent rate) will say no way. It often at that point the reality of the situation sets in and bankruptcy will be considered for the first time.

I've seen the abuse too of course, but the majority are hard-working, long-suffering Americans who just can't do it anymore.

TM

If the GOP really believed that they stand for personal responsibilty surely it would be slam dunk to approve an amendment that limits abouse of bankruptcy by the rich in a bill that seeks to generally limit abuse of bankruptcy.

It's hard to look at the facts in this case and not conclude that those that talk of class warfare by the Right are correct.

I disagree. And, although I am repeating myself, here we go again - the bill being passed today is roughly what has been passed before, going back several years. The asset protection trusts are new (as is Sarbanes Oxley). In fact, Sen Grassley said (somewhat implausibly) that he was not familiar with them. By and large, we seem to have nothing, other than Dem talking points, suggesting that they are an abused loophole in bankruptcy.

Put another way, if these trusts were such a problem for lenders, why were they not picked up in the bill?

So, the simple, non-class warfare, utterly unsatisfying theory is that these trusts are not that common, have virtually nothing to do with the increase in strategic bankruptcies, were not contemplated in the original legislation, and are only being brought up now by Dems eager to kill the bill by introducing complicating amendments.

I understand why Krugman and his acoylytes will want to cling to the more sinister and exciting theories, but I don't see it.

An dI learned a bit about these trusts here, and the Times had an article here - if anyone is an expert, let us know.

And what is interesting in the Times article is that no attempt is made at all to tell us how many of these trusts have actually been used to shield assets in a bankruptcy. They want to close a loophole without any facts about how many assets are in these trusts, when they are used, who has benefitted, or anything else.

And for some darn reason, Congress thinks they can take those burning issues up at a later date. Go figure.

Random M: Thanks for the input. I don't have any sympathy for the credit card companies, and I hate those loan shark rates, but... It would be interesting to see what would happen if we went back to the days of usury caps; the restricted availability of credit would be one consequence, of course.

Whether the Dems want to position themselves as the party committed to less credit availability for lower income groups is an intriguing question.

Robert Musil

Tom,

One additional thought on the narrow sub-topic of whether or not there is a lot of "bankruptcy abuse." I think it is very odd to ask or look to bankruptcy attorneys for an answer to that question, simply because aside from Hollywood agents I don't know a less candid or more confused bunch. The people to ask are credit institution officers who deal with personal debt and bankruptcies. I don't mean the official statements of the institutions themselves - those statements are self-serving, especially since Congress is about to act (although anyone who thinks modern American credit institutions represent the "political right" in this country is about eighty years behind the times). Anyone who has spent any substantial amount of time actually privately communicating with such "bankers" knows that they generally and subjectively believe there is a lot of bankruptcy abuse, at both the high and low ends. At the low end there are lots of hidden assets, fraudulent conveyances, consumer purchases prior to filing and lots more. Moreover, most financial institution officers charged with personal work outs and bankruptcies not only feel there is a huge amount of bankruptcy abuse, but also that much of that abuse is of the worst sort at both the high and low ends: planned, strategic abuse.

At the high end there is a well-established abuse of the "homestead exemption." When he faced possible personal bankruptcy in the early 1990's, Donald Trump bought "Largo a Mar" - the largest estate in Palm Beach (Florida has an unlimited homestead exemption) and made it his "primary residence." Multiple bankruptcies of certain types of sophisticated, high income individuals are very common. Some time ago Congress actually had to pass a law preventing people with student loans (especially that financed professional training, such as medical or law school) from declaring bankruptcy right after graduating. That practice was wide spread - and that personality type has not gone away.

The existence of widespread personal bankruptcy abuse does not end to determine the discussion. But one reason the opposition to this now-pending bill has been so feckless is that so many of the opponents advance arguments that are just bizarre - such as outright denial of widespread personal bankruptcy abuse. The fact is that any Congressperson can be quickly convinced that widespread personal bankruptcy abuse obviously exists at both the high and low ends - and from that point on anyone denying that fact is simply viewed as a fool or a charlatan by the people making the law. Of course, Congress often gives fools and charlatans what they want - but not because Congress believes their arguments.

Just ask Professor Lessig. Somehow Congress is just not discovering that technological and artistic progress in this country is being brought to a virtual halt by the Bono Act.

hoof in mouth

I for one would be perfectly happy to see the reinstatement of usury laws and the resulting loss of credit for some groups. In financial services, there are products which are not available to people based on many factors including net worth, experience and time frame. These are legally required for the protection of both the advisor and the client, because a person without experience cannot fully understand the risks involved, even with disclosure. A volatile product that is "safe" for a trained, experience expert is not "safe" for someone else, even if they really need or want it.

TM

As usual, Robert Musil is a lighthouse in a confused fog. If I can put his first comment in one sentence, it would be that we should address the problem of unscrupulous borrowers with bankruptcy reform, and the problem of predatory lenders with tougher consumer protection laws.

Someone (Drum) noted that easy bankruptcy will have the (desirable) effect of discouraging predatory lending, but it will discourage "good" lending too (if, at this point, folks can even admit that there might be such a thing).

As to high end and low end abuse - I remember the med school exception you noted, but how much other high end abuse is typical and predictable, rather than highly situational? E.g., there may be hundreds of doctors with asset protection trusts, but how many are invoked, and how often does their existence "deny justice" (whatever that means) to creditors?

And can that be taken up separately, as part of malpractice reform, or whatever?

Athe other end, I saw a factoid in some article thatsaid that(IIRC) 1.5% of households file for bankruptcy, but 15% would benefit from doing so. The theme of the article was that strategic bankruptcy was on the rise, as folks heard from friends/relatives how helpful it was, and the social stigma changed.

Cousin Dave

Ron from earlier had a good point. Part of the problem with the opposition, including a lot of people who should know better, is that it's being driven by populist fever rather than reasoned opposition. I've had a hard time myself finding any anti-reform commentary that doesn't have the phrase "evil credit card companies" in its first paragraph.

So let me give it a crack. Over the past week, as I've researched the issue, I've gone from being mildly in favor of the current bill to opposing it. My opposition to the bill isn't driven by any desire to stick it to the Man, but from my belief that this bill is attemping to solve the wrong problem. It's trying to keep people who are and always have been bad credit risks from abusing the bankruptcy process.

So what is the right problem? It's the fact that the lenders no longer have any discretion about who they lend to. A litany of credit "fairness" bills and court decisions has stripped loan officers and credit evaluators of the right to employ judgement or common sense. Credit ratings, to the extent that anyone actually bothers with them, are one-number scores produced by plug-and-chug formulas designed to eliminate human judgement from the equation; in fact, there is no need for a person to be involved at all, and these days often they aren't. Feed in a credit report, a number comes out, and that's it. This elimination of judgement and common sense leads to absurdities like the guy whose credit rating goes down because he canceled a few cards he wasn't using.

Who do credit card companies engage in carpet-bombing mass mailing marketing tactics? Because they don't have any choice. They don't have the legal privilege of actually making decisions about who they want to do business with. The moment that anyone, anywhere, wants a particular credit card with a $50,000 limit and gets turned down, instantly the cries of "redlining" go up and within minutes lawyers are lined up at the Madison County, Illinois courthouse door with class-action paperwork in hand. So if you are a credit card company, you either market indiscriminately or you go out of business, or a court does it for you. You knowingly make loans to bad-risk customers because the law gives you no other option, and you do your best to recoup the losses by hiding them in the rates and fees you charge the good customers. Why do so many credit card companies have "rewards" programs now? They are trying to find a way to improve their standing with their better customers. A much better way would be to "reward" the good customers with lower rates and better terms -- but the law and the courts won't stand for it.

Now, I'm not saying that lenders should be allowed to go back to the days when loans depended entirely on the whims of the loan officer. (Lenders don't really want to go back to those days either. Those work-from-the-gut loan officers guessed wrong a lot. With modern technology, lenders have much more reliable ways of identifying good and bad risks.) What I am saying is that there are an awful lot of bankrupticies that can be seen coming from a mile away; the lenders can pretty much predict the moment someone signs up if that person is going to default or not. Give them back the right to do something about it, to be more selective, and the bankruptcy rate will go down.

Believe it or not, it is possible to live without a credit card. When I was in college in the early '80s, I couldn't get one. When I graduated, all I could get for the first couple of years was a partially secured card with a $500 limit. I survived.

Cecil Turner

I think you'd do better with the "evil credit card companies" shtick. Frankly, I have a hard time staying awake through pro or con arguments, so reasoned opposition isn't getting it. Toby nailed it earlier: nobody gives a good crap, and this thing is going to fly because of inertia.

gt

Why would the bill being old be an excuse? If the bill is old shouldn't it be updated?

Isn't the abuse self evident in an asset protection trust, if you can declare bankruptcy yet shield millions of dollars? What other evidence or information could you possibly need?

sama

Limbaugh played tape of Kennedy having a Howard Dean like moment on the Senate floor, and laughed at him, calling him unhinged. Otherwise, he's made no mention of it.

Patrick R. Sullivan

"What other evidence or information could you possibly need?"

Not only do I want to know where you work, I want to know where you got that Phd.

Patrick R. Sullivan

"Who do credit card companies engage in carpet-bombing mass mailing marketing tactics? Because they don't have any choice. They don't have the legal privilege of actually making decisions about who they want to do business with. The moment that anyone, anywhere, wants a particular credit card with a $50,000 limit and gets turned down, instantly the cries of "redlining" go up and within minutes lawyers are lined up at the Madison County, Illinois courthouse door with class-action paperwork in hand."

Bingo. And they think this bill may be a back door way out of the problem created with the anti-redlining laws.

TM

Isn't the abuse self evident in an asset protection trust, if you can declare bankruptcy yet shield millions of dollars? What other evidence or information could you possibly need?

Frist, a ditto to Patrick. Second, I am holding out for the least bit of info about the circumstances in which these are invoked before I declare them to be "abusive".

If, for example, it is used by a surgeon who is frequently sued for malpractice because he has developed the habit of removing both of his patient's kidneys (Motto: "One for luck!"), "abusive" might cover it.

OTOH, if a doctor who performs abortions is routinely hit with nuisance suits by ardent pro-lifers, maybe "abusive" is the wrong word.

I have to admit, it does sound easier over in the reality based community, where actual facts are not needed.

As to redlining - I wondered if I was the only one thinking that.

POed Lib

The real reason that the conservative blogosphere was so late is that they, lovers of Big Republican Government that they are, innately believe that being kicked around by large corporations is what little people are for.

wayne

I think time was one factor, but it is also quite possible that a lot of people are shrugging their shoulders about this bill. Mainly, because a large portion of this population thinks that bills are individual responsibilites, they also don't see themselves having to apply for bankruptcy and in fact would do just about anything to make sure that they won't approach bankruptcy ( they see it as a big Red Letter on their foreheads ).

J Allan

Cousin Dave

You are correct in your post that the correct issue is not being addressed. But only as it pertains to credit card companies. Entities like JC Penney, Sears, Lowes, Home Depot and many small businesses are also stiffed not only by Chapter 7 but Chapter 13 as well.

As a former IRS employee, I reviewed hundreds of bankruptcy files covering all chapters. Anyone really interested in the issue should take time to review a few files at the Bankruptcy Court in your area. You will be surprised at the number of small dollar cases for chapter 7.

One abuse a few years ago, was young women,(I know sexist me,) purchase a few thousand dollars of household items, mainly from direct sellers and then after 6 months and usually without the knowledge of their future husband, file chapter 7 shortly before marriage and discharge those debts.

Another problem is the advertising by Attorneys in all manners of publications, advertising how easy and painless bankruptcy can be. Many of these one man operations may have hundreds of cases before the Court at any given time and are unable or unwilling to really give any counselling to their clients.

Whether this Bill is the best vehicle or not, I have not kept that much in touch to know. But this I do know, if it adversly affects enough constituants of the Congressmen it will be revisited and unfortunately at some date in the future made worse.

bob

Man, you have a lot of comments from people who haven't read the first thing about this bill. Try www.talkingpointsmemo.com/bankruptcy, where Harvard Law Prof. Elizabeth Warren, who is an expert on this subject, and a few of her students are guest blogging.

Yes, people should discharge their debts. But the credit card companies are clearly the more sophisticated party in this transaction, and they have it down to a science how likely people are to pay them back. They could simply give lower credit limits to riskier people on the front end, but apparently the mathematical equation works out better if they give higher limits, despite the number of people who become unable to pay.

Now, they can have it both ways, offering unreasonably high limits on the front end and when people predictably overextend themselves, squeezing every last penny out of them in bankruptcy court.

Those of you who think it can't happen to you, well, either congratulations on being rich or I hope that you or your kids don't come down with a catastrophic illness that exceeds your health insurance coverage.

Forbes

Oh, no, POed Lib, you've got it wrong. As little republicans, we love being kicked around by those big, bad corporations (and banks, too)--it's in our nature. (It also helps explain those monthly checks we get from the VRWC.)

Goodness gracious, folks. Consumer applies for credit. Credit company grants line of credit. Consumer runs up charges beyond ability to pay. Consumer files bankruptcy to void unsecured credit card debt. Credit company advocates for a tightening of bankruptcy law that would require consumer to pay an amount greater than zero towards outstanding credit card debt.

You'd think credt card companies were forcing people at gun point to run up their credit cards bills--'cuz we know the evil credit card companies are using abusive techniques to make you spend, spend, spend, and buy, buy, buy.

And then we get GT pointing his flashlight over in the class warfare corner, "No, no, it's the rich, it's the rich that are abusing the bankruptcy provisions because they're using these asset shield trusts to stiff the credit card companies, therefore forcing the companies to charge high interest rates on the poor!" Right...

Just like Sandy Weill (or Robert Rubin) at Citicorp, and Jamie Dimon at Bank One are famous Republicans with their shoe on the neck of their credit card customers. (Granted Weill is now retired, and Bank One has been acquired, but those two banks were two of the largest issuers of credit cards over the last decade.)

Anybody ever heard of free will, and personal responsibility, or are we to subsidize those personal failings, as well?

TM

Forbes, I think Bob did a nice job of presenting the Talking Points view of personal responsibility. Briefly:

Yes, people should discharge their debts. But the credit card companies are clearly the more sophisticated party in this transaction... so it is really the fault of the lenders if people getoverextended.

Now... people predictably overextend themselves...

Those of you who think it can't happen to you, well, either congratulations on being rich or I hope that you or your kids don't come down with a catastrophic illness that exceeds your health insurance coverage.

And those of you who think it can't happen to you because you aren't running big balances, and are trying to live within your means - BEWARE! You are just ONE mass-mailing away from being sucked into a vortex of financial despair.

Paul Zrimsek

Assuming for the sake of argument that we really want credit card companies to be our health insurers of last resort, I want to hear more about how their scientific money-extraction equation is able to predict who will come down with a catastrophic illness.

gt

Tom,

Not sure what you are talking about. It's pretty evident what an asset protection trust is. It allows a millionaire to make sure there is a certain amount of money no one can touch. Because of the legal costs it only makes sense for people with a lot of money. That means that if you are a millionaire you can go bankrupt but have a lot of money left. If you are poor or middle class you don't have that advantage.

What more do you need to now?

Forbes

Yeah, TM, it was the reference to TPM, as a source for information on the bill, that caused my eyes to glaze over...

I especially liked Bob's reaching out for a Harvard Law prof, as an "expert" on the matter. Last I checked, common sense, individual responsibility, and a little self-restraint or self-discipline doesn't require an "expert." (Or certainly shouldn't, but since it's un-PC to make distictions between right and wrong, I understand the impulse to authority.)

And then there's the "congratulations on being rich" part...funny that, I'm not rich, I especially need to live within my means, so I pay off the balance on my card bill every month.

And while being rich is a relative term, living within your means is not.

People "predictably" commit murder...should we subsidize that?

Yes, yes, I know. We're ogres. We're nasty. We're brutish. We're heartless. (Did I leave anything out?)

What needs subsidizing next? Gluttony, or sloth?
;)

gt

Forbes,

Can you imagine what would happen to the US economy if all of a sudden everyone started living within their means?

TM

What more do you need to know?

I need to know examples of how they are abused before I know whether they are abusive.

Examples of where they are not abusive might alos be illuminating.

Your assumption seems to be that they must be abusive. By extension, I guess it follows that all legal suits are justified, and that no one was ever harassed or threatened with legal action just because they looked like a wealthy target, etc.

I don't see it that way - I can imagine, as in the abortion doctor example I gave, cases where an honest man might want to protect his assets from others.

Let me know if this is too tricky.

We're nasty. We're brutish. We're heartless. (Did I leave anything out?)

We're short. (Explains the Napoleon complex.)

gt

They are abusive by their very nature because they give rich people the ability to shield money that poor and middle class people don't have. It is giving the rich a right others lack.

Your very example shows this. A rich abortion doctor can try to use this to shield himself. A poor or not-so-rich abortion doctor has no such remedy.

Forbes

GT: Give me a break...only millionaires can afford such a trust? That's the magic number, because attorneys you personally deal with will only take clients with a million dollar net worth. Right. Yeah, that's the ticket, every millionaire I know has one of these trusts--it's the latest trend. (Because someone with $2.4 million in assets and $1.6 million liabilities is not wealthy enough--or in dire enough circumstances--to afford the abusive lawyering you're so excited about. He's part of the poor and middle class!)

And one of the complaints about this bill by the ABA is that they're supposed to certify client assets and libilities in the bankruptcy proceeding (which they do not want to do). So on one hand, they haven't a clue to net worth, on the other hand, they know exactly!

Perhaps I missed it earlier in the thread, GT, did you cite or link to a study or report detailing such a trust, and the number of times it was successfully used to shield assets, and the total amounts of such assets shielded? (And I don't mean a WaPo article filled with anecdotes.) 'Cause it sure sounds like a straw man argument--but you could be right. Enquiring minds would like to see facts, not allegations.

Cheers.

gt

Forbes,

Are you saying they don't exist? That they are not used?

Jim Glass

"Are you saying they don't exist? That they are not used?"

Are you saying one of them has ever actually stood up in a court challenge against a creditor's claims?

Now I haven't been following this credit card ruckus and don't really care about it either way. But I have been in the law business in a field related to trusts for 20 years, and had never heard of these "asset protection" thingies, so I'm thinking what are all these people talking about?

Then I follow Tom's link to:
http://www.trustsassetprotection.com/domestic_APT_analysis.htm

Ah ha, those I've heard of, of course! The lame kid brother of the off-shore self-settled trust, whipped up by the trust salesmen as a replacement commission generator after the mighty original "off shore trust" go its butt kicked by every creditor's lawyer in the land.

What's the problem with these self-settled domestic sales commission generating, excuse me, asset protection trusts?

Well, Defects #1 through #5 explained at the link there are a fair description, for starters. (Though Delaware and Alaska in particular love to enable them for their legal and trust selling lobbies, and as revenue raisers -- to be "protected" assets have to be moved in state, of course.)

All kinds of useless scam trusts get sold these days -- especially to doctors! -- so you have your choice of 'em.

But my personal recommendation is that anyone who wants to make a trust salesman rich should still go with the classic offshore trust -- then if you are willing to actually flee the country you have at least some chance to get away with something.

OTOH, I'm always willing to be instructed in latest developments and to update my opinions accordingly.

So if GT or anyone else knows of any actual real instance, even one, where one of these DAPTs has actually succeeded in beating off a creditor's claims in a reported case in a federal court -- bankruptcy court is federal -- just please provide me with a case name and cite and I'll look it up and learn.

Though if they can't, this'll all prove pretty lame...

BTW, since we're all so concerned about the poor being screwed by ruthless creditors, do we all know that the IRS -- yes, our own government -- can and often does attach the very qualified pension and retirements accounts of the working classes in a way that no private sector creditor (not even a credit card company!) can ever do?

Where's the outrage??



anony-mouse

So what is the right problem? It's the fact that the lenders no longer have any discretion about who they lend to. A litany of credit "fairness" bills and court decisions has stripped loan officers and credit evaluators of the right to employ judgement or common sense.

Now THERE is an aspect that needs to get talked up more. All the average citizen -- me, for example -- typically sees is eight or more credit mailings each month, in spite of yours truly having relatively little credit history and, for now, an unstable income. Which in turn leads to the wrong conclusions on why the credit companies are so liberal in extending credit.

Robert Schwartz

I am just heart sick about this Bill. I spent a number of years doing high level legal work for the credit card industry, including some pioneering work on banking law. I have a professional knowledge of the credit card and consumer lending businesses and how they work. Oh yes, one more item. I am a conservative Republican, but I think that the claims of commerce need to be tempered by compassion and religion.


Believe me, the Credit Card companies do not leave anything on the table. They squeeze their customers just as hard as they can to get every nickel of money out of them that they can. The Credit Card companies have been borrowing money at close to zero interest rates for the past few years. Ever wonder why your APR is 24.9%. The Credit Card companies spend enormous resources figuring out who their customers are, how much they will spend, how many of them are going to default, and every other term of their business. They are quite happy to solicit every man, woman, child, dog and inanimate object in the country to acquire one of their credit cards. And they are not doing that because they are stupid, but because they believe they can price their product to make money on that basis.

What possible use is this bill to them? If Chapter 13 were abolished, Texas exemptions made universal, and only criminal fraud declared non-dischargable, it would not materially change the credit card business in the United States. They would still price their product to make money and very few deadbeats would have to post collateral before obtaining a credit card. Let us leave the onus on the lenders to do proper underwriting before issuing credit. They have more resources at hand than borrowers, so why let them off the hook for poor business practices?

Furthermore, an irresponsible consumer will still be punished with the eventual, yet assured, loss of credit, and an irresponsible lender, will be punished with the loss of capital. Both parties have sufficient economic incentives for a smoothly operating credit market. What problem does this bill solve? If this bill passes, the benefits, if any, will flow to the bottom line of the credit card companies and will not touch any consumers.

I note the claim of the Bill's supporters that it only negatively impacts high-income people as a bit of unintended irony. I wonder how many of the Bill's proponents rebutted their congressional opponents claims that the President's tax bills favored the rich by labeling those claims as class warfare rhetoric? Should they then turn around and use that same rhetoric to pass the Bankruptcy Bill?

Finally, I think we need to remember that the subject of debtor-creditor relations is not one where should recur only to our reason for ethical answers. We often criticize those who think they can by exercise of unaided reason invent morality. Let us then read scripture for guidance on this subject.

Ex 22:
26 If ever you take your neighbor's garment in pledge, you shall restore it to him before the sun goes down;
27 for that is his only covering, it is his mantle for his body; in what else shall he sleep? And if he cries to Me, I will hear, for I am compassionate.

Dt24:
10 When you make your neighbor a loan of any sort, you shall not go into his house to seize his pledge.
11 You shall stand outside, and the man to whom you make the loan shall bring the pledge out to you.
12 And if he is a poor man, you shall not sleep in his pledge;
13 when the sun goes down, you shall return the pledge to him that he may sleep in his cloak and bless you;
and it shall be righteousness to you before the LORD your God.

Christians would add:

Mt 6:
12 And forgive us our debts, As we also have forgiven our debtors;

The notion of allowing the debtor relief with lenity is not therefor merely an example of American Ingenuity, it is an example of American Piety, and one we should not forget.

TM

They are abusive by their very nature because they give rich people the ability to shield money that poor and middle class people don't have. It is giving the rich a right others lack.

A commenter at Jesse's fine Pandagon actually made that same argument. Despite being a member of the Alternative Reality Based Community, the fellow actually did some research. His ardent plea merits a "self-parody" alert, but here it is:

A middle-classer with some savings can't stockpile cash in an asset protection trust because they are so expensive. According to a Bloomberg article, a domestic asset protection trust (supposedly so much cheaper than an offshore account) costs about $5,000 in legal fees and $1,500 to $3,000 in annual trustee fees. No ordinary person can afford that.

It's awful that anyone below a certain class level doesn't get the loophole and doesn't have any way out.

As to "giving the rich a right others lack", maybe "opportunity" should be substituted for "right"; in any case, we might say the same thing about access to attorneys, BMWs, second homes, European vacations, private schools, and many other things.

I want to check the recent Fed survey on household net worth to see how many folks are hopelessly unable to afford $1,000 / yr to protect their assets (and protect them from what, one wonders?)

Cecil Turner

"BEWARE! You are just ONE mass-mailing away from being sucked into a vortex of financial despair."

Wow! I was just reaching for the no-doze, when this monster metaphor slapped me in the psyche. (The whole mental picture--the outflow of the mailings, the sucking despair vortex--and the tension between the two.) A latter-day Scylla and Charybdis menacing the straits of financial planning, as it were.

Then we got back to how defaulting credit card users were being mistreated (and whether a properly shielded millionaire might not have to pay his fair share of exorbitant credit card company profits . . . or something like that), and now biblical guidance on usury laws (and how collecting in houses or at night is bad form), and . . z . . zz . . . zzzzzzzzz.

gt

Jim,

If they are useless all the more reason to get rid of them. But AFAIK they have never been tested one way or the other.

Tom,

No, that's not my point. Obviously if you are rich you have more resources. The point is that an APT allows you (or may not allow you as Jim points out) if you are rich to keep a bigger share of your assets than if you are poor.

This is how I understand it (and correct me if I am wrong). Imagine two persons with with net worth of exactly zero. One has assets and liabilites of $150K each. The other has assets and liabilities of $10MM each. The rich person through loopholes may keep a good chunk of that $10MM in assets (how much probably depends on the situation) while the poorer will keep none or almost none. A fair law should result in both ending with the exact same amount since they both have the same net worth.

So why would you want to keep APT laws in place? Specially if, as Jim says, they are probably useless.

gt

BTW Tom and Jim,

My question, which still stands, is why the GOP would vote down an amendment banning these trusts. Pointing out that they are not so expensive or that they may not be so useful doesn't address that.

I am still looking for someone to tell why we need these APTs and why getting rid of them is a bad idea.

pdq332

If I wanted to milk a dozen trailer park residents each of their last $10,000 I'd send them all credit card offers. And that's what this is about, folks. Predatory lending. It's about time to wake up the Christians on this issue. The spectacle of bankers taking homes away from poor people makes me want to overturn the tables of the money changers.

Jim Glass

As to "giving the rich a right others lack", maybe "opportunity" should be substituted for "right"...

It's like in Life of Brian, is Stan unjustly deprived of his "right" to have babies by not having a womb?

I want to check the recent Fed survey on household net worth to see how many folks are hopelessly unable to afford $1,000 / yr to protect their assets (and protect them from what, one wonders?)

Protect what assets? If you haven't got $1,000 to protect them, what have you got to protect?

This is riduculous, the bankruptcy court's personal exemptions most everywhere cover assets of enough value to cover that. Look at the homestead exemptions alone...

And as I noted just above, by far the most likely effect of not having $1,000 a year to pay for a DAPT is that it will save you from wasting $1,000 a year -- unless someone can cite some actual case where one of these things actually beat off creditors in court to some somebody's million dollars of assets.

Until then all this to-do does is demonstrate how pathetic the Dems are getting at playing the class warfare card.

If the Democrats were sincere about consumer protection, they'd do doctors a favor and support a consumer protection law cracking down on these slimey fear-mongering trust salesmen.


gt

You still haven't answered the question Jim. If it's so useless why did the GOP vote against getting rid of it?

TM

My question, which still stands, is why the GOP would vote down an amendment banning these trusts.

The best is the enemy of the good. Whether or not banning these makes sense, the bill on the table was, per the Times, virtually the same bill that had been passed many times before. Congress felt like they understood it, and wanted to move on.

Opponents are playing the classic "Hey, the bill could/should be even better" game; both sides do it all the time, but please, let's not confuse tactics with substance.

And at this point, no one has offered any evidence that these trusts are in fact abused.

Now, that is about the third time I have given that answer, GT. You may not like it, but it is an answer.

Put another way, we could spend time arguing that, since Reps voted down the amendment that would bar bankruptcy protection to folks who lost civil judgements related to abortion clinic bombings, the "real" Rep agenda is to promote the bombing of abortion clinics. I expect that argument is being made somewhere, but my response would be the same - it is a different issue that was introduced to derail, not improve, this bill.

Anyway, on the list of Frquently Unanswered Questons - no one has risen to defend either (a) the phony study showing that half of bankruptcies are due to, per Krugman, "medical emergencies", or (b) Kevin Drum's absurd proposition that "half" of credit card company profits come from late fees and penalties.

Any takers?

Cousin Dave

gt, I think the answer to your question is: there's no point, for two reasons: (1) They probably won't work. Don't forget, these APTs only came into existence because the "off shore trusts" failed. The point to note is that there was no legislation (AFAIK) that banned the off shore trusts. They failed because courts got wise to them. Jim is saying the same thing will happen with the APTs. (2) Trying to knock down these trust hucksters is a whack-a-mole job. If you ban one thing, they change the wording a bit and come right back. The only thing that would work would be to ban trusts altogether; that would have lots of negative consequences, and it still probably wouldn't stop the cons selling the Cayman snake oil.

Patrick R. Sullivan

"You still haven't answered the question Jim."

Stones. Glass houses.

"If it's so useless why did the GOP vote against getting rid of it?"

Logic isn't your strong point, GT.

gt

Tom, you say that no one has offered evidence that the trusts have been abused. It is my contention that the trust themselves are abusive simply becasue of what they allow. Can you give me any reason why they should be allowed in any case? What benefits derive from them?

Don

Maybe I can shed a little light into this heat, being someone who has wrestled with this issue personally.

Through a combination of insufficient restraint, bad luck and some poor decisions about my small business I found myself with about $55,000 in unsecured debt to a few credit card companies. The immediate prospects for my income in the next year were under $10,000. As it would turn out that would be about what I'd manage to live on for the following three years.

The reasonable course of action was bankruptcy, but I didn't want to do it. A large part of that was that I felt that I should pay my obligations. Second, I hadn't given up my hope of continuing to Be My Own Boss and having that smear on my record could impede that in the future.

People can talk about how long "bankruptcy remains on your record" but the reality is that as a civil filing it's going to be on record forever. As more and more quick-access electronic record searches into public records appear it's going to be easier for people to find out these things about you even past the point where bankruptcy can theoretically be used as a decision making fact. A quick Google turns up http://www.privacyrights.org/ar/bankruptcy091800.htm which lists three companies that claim they'll find those records for you.

The bankruptcy law itself specifically states that the records will be public with almost no exemptions. http://assembler.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000107----000-.html I'd also point out that while the code says that it can't be discriminatory, there's no penalties laid out for such conduct. Additionally, you likely will never get past that point on some purchases. Although consumer revolving credit is unlikely to be high enough to consider it, there's a large-amount exemption that would kick in were you to try to get credit over a certain amount. I don't have the number at my fingertips but if you wanted to buy a house here in the Northern VA/DC area it would apply. So if you had declared in 1970 and went out to buy a house in 2005, 25 years later, it's still going to be something your mortgage lender can see and consider.

In my case I was a near perfect candidate for discharge. No house to worry about losing (though as a Florida resident it wouldn't have been a concern even if I'd had a $10,000,000 mansion, a loophole that the current 'reform' still won't correct so long as you've owned it for 3y4mo before filing - perhaps some pro-reform individual can explain to me why this reform simply demands longer foresight in asset protection rather than actually fixing the problem?), an old car, most of my possessions that weren't used in support of my business already sold to keep making payments. There was $20,000 in a trust that wouldn't be available to me for another 5 years at that point but the terms of it were such that it couldn't have been touched by bankruptcy.

In retrospect I should have taken Chapter 13 though I'm unsure I would have fallen into the minority group of people who manage to successfully complete it rather than enter into Chapter 7 later. But I wanted to meet my obligations so I worked hard to find a way to pay my debts, something that I discovered the creditors didn't necessarily have a lot of interest in assisting with. I convinced the trustees of that $20,000 to find a clause to allow me to use it to make a settlement offer to one creditor. Another agreed to close the account and lock me into 10% annual interest so long as I kept up the agreed upon $77 a month payment via EFT.

The 'problem child' was Citibank, who held two different accounts by virtue of having bought the banks that I'd actually opened the credit lines with. By this time I'd missed enough payments or made them late enough that all the rates were 25% annual. The above mentioned bank, First Omaha, had made the 10% deal with me. Still a good 3-5% above prime and a moneymaker, I might point out. Citibank said we won't make that deal with you, but we have a hardship program we can put you in. Make these payments every month via EFT (so they don't have to worry about my failure to mail a check) and we'll set your account a ZERO percent interest, then when that time is up we'll talk again.

The amount owed to them was about $9,000 rather than a aprox $4,000 to First Omaha but the payment amounts were more like 3x as large. But I signed on and kept scraping together the money. At the end of it I got a statement from them indicating we were back to 24.99% interest... and an overlimit charge. Like a lot of people who get in over their heads I'd run my credit up to the line. The $29 late payment fees quickly pushed me over the limit and subsequent months had $29 late fees and $20 over limit fees. So when that $8,000 accrued its monthly $166.60 in interest it also tacked on another $49. So next month's 2.0825% (24.99 divided by 12) was computed against $8215.

I called them, pointed out that with that combination of interest and fee I'd have to live into my hundreds to ever pay them if I wrote the minimum. If I paid 3.33% of that $9000 - more than the minimum - it would be a full year before they stopped charging me that overlimit fee and 5 years before I was done. Assuming I kept up 3.33% of $9,000, not 3.33% of the current balance. 3.33% of the current months owed would mean 10 years before the debt was below $2,000. At which point I would have paid them $20,000.

Most of this is the fault and problem of the person who incurred the debt, true. And everyone should know it's more expensive to buy things on credit than to pay cash. But here's the problem - once someone is in this situation there's effectively no way to get out from under that 20+% interest rate, and that was my situation. Once they'd done that 3 month 0% interest deal for me, Citibank said nope, you agreed to these terms when you joined up and nope, we don't offer better interest rates for anyone in a bad credit condition. So I found myself committed to annually paying $25 for each $100 I owed after, not counting fees. And nobody was going to offer me another place to switch over to - I was over-extended as it was!

I don't tell you this story looking for sympathy (or a handout, though any of you who feel bad you missed the boat on "SaveKaryn.com" can feel free to send me money if you feel the desperate need), I just think some people need to understand two things: One, the most motivated person can face almost insurmountable obstacles in actually getting out from under that debt. If I had been able to pay $500 every month on that $9,000 debt it would have taken 24 months to shift the balance to $0.00. At $400 it would have taken just shy of 3 years. $300 would be over four. Ponder how easily you could take that out of your pocket every month and what changes in lifestyle it would take. Think about how your salary stacks up against the national average and the averages of people declaring bankruptcy. Most significantly, ponder this: people trying to make good in this circumstance are making that level of sacrifice to pay 25%... 19.5% over the current prime rate. The Vanguard stock market index fund has averaged 11.05% over the last 10 years, over 8% lower.

Two, these companies make billions by setting these policies such that they maximize their return. If those rates and fees drive people into bankruptcy you can be sure they took the actions that would maximize their total return. Going after people teetering on the edge for higher interest rates and racking up the fees isn't something a CEO thought up when heartburn was keeping him up late, it's a carefully arrived-at balance that their finance teams determined would maximize the return before the debts were sold off for pennies on the dollar to collectors or wiped out by chapter 7. That isn't an apology for people not making good on their debts, merely a counterpoint to the ludicrous claims that the lenders are sucker-punched and hamstrung by chapter 7 filings rather than being a carefully computed in every decision they make and fee they charge.

As far as the 'abuse' supposedly happening in the World Of Bankruptcy, most of the things that would need to be corrected legislatively don't apply to anyone but the numerically insignificant number of big money people (Trump, OJ Simpson, etc) who file. The courts can reject an inappropriate filing or demand a chapter 7 filer instead use chapter 13 and repay some portion of their debts. The trustees (organized under DOJ) have a lot of latitude as well. If congress is serious about stopping abuse they can better fund the DOJ Trustees Office and engage in a little oversight to make sure the existing law is appropriately applied.

Also missing from this new supposed correction of these horrid loopholes, based on my cursory research, is any alteration of the restrictions on chapter 13. Specifically the fact that over a certain dollar amount (of interest to only the Trumps of the world) chapter 13 is not available, meaning that a judge does NOT have the latitude to force them into 13 rather than 7. Perhaps a reading bankruptcy attorney can comment. The applicable section is here: http://assembler.law.cornell.edu/uscode/html/uscode11/usc_sec_11_00000109----000-.html

On the more practical level and applying to the Common Man, the fiction of people spending and filing, lather-rinse-repeat is simply laughable. Once you declare you cannot do so again for six years. You'd have to be damned industrious to make a career of it since record of that filing persists for 10 years (or forever for certain loan amounts, see above) so once someone had pulled this fictional abuse there's no way they'd have credit extended to them without having its amount limited and other fees charged to offset the risks. And as a believer in taking responsibility for one's own actions I'd suggest that anyone who extended much credit to such people should accept the repercussions of their irresponsible actions.

Don

I said: "So if you had declared in 1970 and went out to buy a house in 2005, 25 years later, it's still going to be something your mortgage lender can see and consider."

I am sure some funny guy will point out mistakes like confusing 25 and 35 could have factored into my financial woes....

Forbes

So GT, when did you stop beating your wife?

/snark off

Each of your responses to a question is another question, or assertion, so I thought I'd demonstate the logic of such an approach--does it work, or does it merely change the subject?

I'm not interested in a side debate about what my opinion is about some assertion you've made.

Nonetheless, I'll grant you that you might be right--if you make an argument that has some foundation other than your assertion.

Can you cite or link to a study or a report that details the number of times that such a trust has been successfully used to shield assets in bankruptcy and the total dollar value of such assets shielded?

Until you do so, your argument consists of the "When did you stop beating your wife?" assertion.

gt

Well Forbes, you are right. I don't have any such data. If it turns out the APTs have never been, and never can be, of any use to anyone then I agree my point is meaningless.

I am assuming since several experts have been quoted on the press citing these trusts as an example of loopholes for the wealthy that they are real and have been used with some success. But I don't know.

Of course it could be that they simply have not been tested one way or the other so that no judge has ever opined on them. If that is the case I think my question still stands. If there is any doubt that these trusts could be used as loopholes why didn't the GOP vote to eliminate them. What use do the have?

Jim Glass

"Kevin Drum's absurd proposition that "half" of credit card company profits come from late fees and penalties."

Bah, I looked it up and the credit card companies get fully 22% of their revenue from persons ages 35 to 45. And that 22% of revenue = 100% of their profits! So somebody tell Drum they can't possibly get any profits from late fees.

"Tom, you say that no one has offered evidence that the trusts have been abused. It is my contention that the trust themselves are abusive simply becasue of what they allow."

You haven't shown that they allow squat.

I've pointed you to legal analysis saying they don't allow squat, explaining exactly why.

If you think they do allow squat and the legal analysis is wrong, explain how and show one (1) single, lone, example of squat being allowed.

Otherwise give this nonsense up and start lobbying the government to regulate trust salesmen, which will have a much more realistic benefit for society.

Geeze, if the Democrats are really pinning their hopes on class warfare, and these "11% of revenue = 50% of profits!" and "trusts that have never once worked for anybody are an outrage!" arguments are the best their War Room can come up with, they're never going to win another election.

It's no wonder they couldn't even convince 18 Democratic senators not to vote for this bill.

gt

Jim, see my response to Forbes above.

BTW I don't represent or speak for the Democrats, only for myself.

Forbes

GT, you're still flogging the same non-argument. If you can't demonstrate--with the use of actual facts--then all you have is an empty allegation. No one needs to answer your empty allegation.

So far, in your words, this has been meaningless.

gt

No, since you haven't been able to show that it serves any purpose. I at least have experts quote dsyaing this is a real probelm. Admittedly we need more information. But at least that's a start.

There are three possibilities.

1) APTs can be used to shields assets. I have no direct proof of this other than the experts quoted.

2) APTs can't be used to shield assets. Supporting this is the legal reasoning Jim aluded to. But no case law AFAIK.

3) APTs are used but have not been yet tested one way or the other, at least not conclusively. I suspect (just suspect) this is the correct one.

What do they mean?

If 1) is correct my question stands.

if 2) is correct my question is meaningless.

If 3) is correct my question stands.

TM

My last gasp on these asset protection trusts, which I offer as a supplement to the points made above - maybe they can shield assets from a malpractice judgement, or from a nuisance suit filed by a vengeful ex-wife and her alcoholic boyfriend, but won't stand up to a full court bankruptcy proceeding.

In which case, I would say they have some purpose, and are over-promoted by hucksters.

We do live in a world where there are plenty of judgements handed down other than in bankruptcy.

gt

Tom,

I sent an email to the expert at the TPM blog to see if they had any more specific information.

What you say, that they won't stand up to bankruptcy proceeding may be true but is there any proof?

I think its not settled yet.

Axinar

I don't know if we bloggers MISSED it, per se -- we were just overly optimistic that the amendment process would stop it or at least slow it down a bit.

What is most horrendous about this bill is that there are no distinctions between running up debts on pizzas and running up debts on medical bills.

This is the closest thing we have seen to slavery since the 19th century.

TM

the closest thing we have seen to slavery since the 19th century.

Since it's March, can I mention the baseball reserve clause?

What is most horrendous about this bill [and the Harvard study criticizing it] is that there are no distinctions between running up debts on pizzas and running up debts on medical bills.

gt

I got a response from Elizabeth Warren who says that these are new legal developments and the few cases that have gone to courts have not produced definite case law and they seem to be going in different directions. She also said that the whole purpose of the amendment was to "stop these things in their tracks".

So it seems its similar to scenario #3 I described above.

And so my question still stands. Why did the GOP vote against this amendment?

The comments to this entry are closed.

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