Proposed New Bankruptsy Law Threatens Consumers, Protects the Rich

Daily Kos :: The Bankruptcy Bill, Examined.

You have now gotten a glimpse into the next 2 years (at least) of what will pass for legislation in the Senate and the House. Orwell would be proud of the naming: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. No protection for the homes of the elderly and the medically infirm -- but by God, we made sure those exemptions for protected assets stayed firm. No protection for employees' earnings, pensions and retirement savings when an employer takes refuge in bankruptcy - but by God, we're gonna protect those credit card companies from too many intrusive rules that demand they properly inform their consumers of the small-print deal with the devil they've just made on that high-interest, high-limit, low-minimum-payment credit card. Outrageous!

Complete Article
The Bankruptcy Bill, Examinedby Hunter

Sun Mar 6th, 2005 at 03:31:44 PST
[The following is based on a Daily Kos diary by Maryscott OConnor. Due to the importance of this bill and the quality of her research and analysis, we have requested and received from Maryscott permission to repost this edited and restructured version of her original work. What follows is required reading for anyone seeking to understand the motivations behind this bill and the strategies being used in forcing this legislation through the Senate. -- Hunter]
The details of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 reveal it to be a bill crafted as a Republican paean to MBNA, the largest single contributor to the Republican party.  Far from being either an effort to stem "Bankruptcy Abuse" or an effort at "Consumer Protection", the bill is in fact an attempt to rewrite bankruptcy laws to reduce the ability of those laws to protect consumers from predatory lending practices on the part of MBNA members, and to stiffen the capabilities of those corporations to collect from consumers already suffering from extreme financial hardships.
The "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005" will almost certainly pass, absent a filibuster -- and at present, it is questionable whether Democrats would have the votes for a filibuster. Nevertheless, it is instructive to examine the structure and proposed amendments to this bill, to examine exactly how insistent Republicans are in passing this bill while blocking all Democratic efforts to protect even the most at-risk consumers.
On the Democratic-sponsored amendments discussed below (you can learn a lot from the Role Call Vote Summary, which lists each Amendment to S.256), the voting was consistent.  Not even one Republican voted against party lines.  Three Democrats consistently voted with the Republicans:
Sen. Nelson (D - Nebraska)
Sen. Johnson (D - South Dakota)
Sen. Carper (D - Delaware)
Also frequently voting with the Republicans:
Sen. Biden (D - Delaware)
Congress :: The "Abuse Prevention and Consumer Protection" in this bill occurs for Chapter 7 and Chapter 13 bankruptcies - individual avenues of bankruptcy.  Conspicuous in absence, evidently not needing reform, are Chapter 11 bankruptcies.
Want to guess what Chapter 11 covers?
You guessed it.  Chapter 11 is bankruptcy for businesses:

Chapter 7 Bankruptcy - The most common type of bankruptcy proceeding. It is a liquidation type of proceeding (as opposed to a reorganization proceeding). All of the debtor's assets, with the exception of "exempt" property, will be sold, and the proceeds will be used to pay their debts. If the proceeds are not enough to pay off all the debts, unpaid amounts on "dischargeable debts" will be discharged.

Chapter 13 Bankruptcy - Known as reorganization bankruptcy. Chapter 13 bankruptcy is filed by individuals who want to pay off their debts over a period of three to five years. This type of  bankruptcy appeals to individuals who have non-exempt property  that they want to keep. It is also only an option for individuals who have predictable income and whose income is  sufficient to pay their reasonable expenses with some amount  left over to pay off their debts.

Chapter 11 Bankruptcy - Typically used for business bankruptcies and restructuring. It is not commonly used by individual consumers since it is far more complex and expensive to pursue. It allows businesses to reorganize themselves, giving them an opportunity to restructure debt and get out from under certain burdensome leases and contracts. Typically a business is allowed to continue to operate while it is in Chapter 11, although it does so under the supervision of the Bankruptcy Court and its appointees.

It seems evident that the only people the Republican crafters of this bill think are "Abusive" of the bankruptcy laws are individuals, and the only people needing "Protection" are the corporations.

Democrats have been introducing amendments designed to limit the damage by this bill, or at least protect the most vulnerable consumers, or at the very least address the issues of predatory lenders and clear loopholes for high-wealth individuals. In examining the proposed amendments, and the votes on them, a clear pattern emerges -- and when probing the intentions of the Republicans in crafting this bill, Amendment 42 is in many ways the smoking gun.
Sponsored by Sen. Schumer (D), Amendment 42 is described thusly:

03-Mar
On the Amendment S.Amdt. 42
Schumer Amdt. No. 42; To limit the exemption for asset protection trusts.
REJECTED

What does that mean? Here's the translation: Sen. Schumer (D) wanted to limit the free ride given in this Republican-sponsored legislation to people who are rich enough to put their assets in a "protected trust".
Laws inspired by the Enron debacle may hold the officers of a corporation personally liable for the deceptive financial practices, and ensuing disasters, of their corporation. However -- luckily for prospective corporate criminals -- there are in the United States a handful of states, such as Utah, where you may stash your assets in a "protected trust" and render them untouchable by bankruptcy laws -- and you don't have to be a resident of those states to take advantage of those laws.
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, while purporting to strenghen bancruptcy laws against abuse, specifically provides exemptions for those asset protection trusts.  Schumer's Amendment 42 was an attempt to close that loophole.
It was rejected.  Not only rejected, but every Republican voted against it. The Republicans were joined by Democrats Nelson, Johnson, and Carper.
Now, let's look at the other Democratic amendments to this bill:

03-Mar
On the Amendment S.Amdt. 49
Durbin Amdt. No. 49; To protect employees and retirees from corporate practices that deprive them of their earnings and retirement savings when a business files for bankruptcy.
REJECTED

That pretty much speaks for itself. The sole Democrat to vote against this proposed amendment (again, all Republican senators voted against all these amendments) was Sen. Nelson. Several other Democrats are listed as not voting.

03-Mar
On the Amendment S.Amdt. 38
Durbin Amdt. No. 38; To discourage predatory lending practices.
REJECTED

You know those credit card offers you get? The ones with the huge limits that make no sense in relation to your income? The ones with the 21% interest and the late fees and the renewal fees and the arbitrary increases in interest? They're called Predatory Lending Practices. Banks can't do it; ask the S&L's. Better yet, ask the taxpayers who bailed out the S&Ls after they were driven into the ground by corporate managers writing deeply questionable loans to unqualified borrowers.
Credit card companies, however, can, and as a cursory glance at the terms provided by those innumerable junk-mail credit card offers that regularly appear in your mailbox show, they do.
Sen. Durbin proposed an amendment to the bill that -- since the purpose of the Republican bill is to make it more difficult for consumers to gain bankruptcy protection from predatory lenders -- would help curb those predatory practices, since those practices lead to major debt, increased bankruptcies and eventually -- in the case of the S&L crisis, when those bankruptcies in turn forced the lenders themselves into insolvency -- costly taxpayer bail-outs.
Democrats voting against the amendment, joining every single Republican Senator, were again Senators Nelson, Johnson, and Carper.

03-Mar
On the Amendment S.Amdt. 37
Nelson (FL) Amdt. No. 37; To exempt debtors from means testing if their financial problems were caused by identity theft.
REJECTED

Again, if the purpose of the Republican bill was indeed Consumer Protection, this seems pretty straightforward and sensible. Why would we want to make life even more difficult for victims of identity theft by making the last resort of personal bankruptcy difficult or unavailable to them?
Nevertheless, the amendment to provide consumer protection for identity theft victims was defeated: all Republican Senators voted against the amendment, along with Democrats Nelson (NE), Johnson, and Carper.

03-Mar
On the Amendment S.Amdt. 31
Dayton Amdt. No. 31.; To limit the amount of interest that can be charged on any extension of credit to 30 percent.
REJECTED

While reasonable sounding, 19 Democrats voted against this amendment; we will be charitable and assume the amendment was poorly written. There was some concern that the amendment would supercede any State usury laws. Sen. Kerry was among those voting against it.

02-Mar
On the Amendment S.Amdt. 32
Corzine Amdt. No. 32; To preserve existing bankruptcy protections for individuals experiencing economic distress as caregivers to ill or disabled family members.
REJECTED

Again, this one is a simple effort to not strip away existing protections for people who are struggling to stay alive, housed, and fed while taking care of ill or disabled family members. It would seem uncontroversial in the extreme, right?
Well, it seems 54 Republican Senators, 5 Democratic Senators and 1 "Independent" Senator do intend to strip away those protections. The Democrats: Baucus, Bingaman, Carper, Johnson and Nelson of Nebraska. Senators Biden and Santorum did not vote.
Now, two big ones:

02-Mar
On the Amendment S.Amdt. 28
Kennedy Amdt. No. 28.; To exempt debtors whose financial problems were caused by serious medical problems from means testing.
REJECTED

02-Mar
On the Amendment S.Amdt. 29
Kennedy Amdt. No. 29; To provide protection for medical debt homeowners.
REJECTED

Both amendments were sponsored by Sen. Kennedy, and had the simple goal of consumer protection for individuals whose medical debts are the reason they're filing for bankruptcy.
All Republican Senators voted against these amendments.  Democrats voting against Amendment 28 were Biden, Carper, Johnson and Nelson.  Democrats voting against Amendment 29 were Bingaman, Carper, Johnson and Nelson. Republican Sen. Santorum was absent from the votes.

02-Mar
On the Amendment S.Amdt. 15
Akaka Amdt. No. 15; To require enhanced disclosure to consumers regarding the consequences of making only minimum required payments in the repayment of credit card debt, and for other purposes.
REJECTED

Again, this Amendment was a Democratic attempt to balance the aggressive protections given by the bill to predatory lenders by simply requiring credit card companies to give people more prominent warnings about what will happen if they only pay the minimum required payments on those cards. This is a significant problem for many consumers, who do not understand that making the minimum allowed payments on credit cards actually increases their debts on those cards.
All Republican Senators voted against the amendment. They were joined in rejecting it by Democrats Baucus, Biden, Carper, Johnson and Nelson.
Continuing on, a very, very important amendment:

02-Mar
On the Amendment S.Amdt. 17
Feingold Amdt. No. 17.; To provide a homestead floor for the elderly.
REJECTED

This is a truly outrageous rejection.  Allow us to explain as succinctly as we can:
Each and every Republican Senator, along with Jeffords (I) and Democrats Biden, Carper and Nelson, voted to reject a provision that would ensure that no elderly people in enough financial trouble to seek bankruptcy protection would lose their homes.
Here's how the debate went down, in a nutshell:

"In States such as Florida and Texas, there is a homestead exemption with an unlimited dollar value, meaning that any money invested in a home cannot be obtained by creditors. I should note, of course, that this creates other problems, which I will address in a few minutes. But other States allow a very limited value homestead exemption. In many States, the amount of equity a homeowner can protect in bankruptcy has lagged far behind the dramatic rise in home values in recent years. For example, in the State of Ohio, the homestead exemption is only $5,000, and in the Presiding Officer's State of North Carolina, the homestead exemption is $10,000. In this day and age, those paltry exemptions will do no good. We obviously have a problem, and it is hitting our older friends and family members the hardest.
Think about it: In these low homestead exemption States, even indigent elderly homeowners who own a home free and clear worth only $30,000 or $40,000 cannot file for chapter 7 bankruptcy without losing their home.
And they may not be able to file a chapter 13 case because they cannot afford to pay creditors the value of their home equity that is not exempt, as required by that chapter. Many elderly homeowners live solely on Social Security benefits, often no more than $800 to $1,000 per month. This is enough to subsist in their paid-off homes, while still paying taxes, utilities and other basic living expenses. But if they lose their homes, they will not be able to rent a decent place to live. Effectively, this means these older homeowners have no bankruptcy relief available to them at all. We have to address this gross inequity before we pass this bill. My amendment would create a uniform federal floor for homestead exemptions of $75,000, applicable only to bankruptcy debtors over the age of 62, protecting the lower- and middle-class senior citizens who need it most.
I will give an example that illustrates why it is so important that we fix this problem and fix it now. Let me tell my colleagues about Mary Bobbit. Mary Bobbit is a 70-year-old widow who lives in North Carolina, where the homestead exemption is only $10,000. According to a local news story, she recently lost her husband to cancer, a battle that left her with more than $175,000 in unpaid medical bills. Her only remaining asset is the home that her family built themselves 26 years ago, a home that she paid off just last year. And now she is faced with a horrible dilemma, because if she files for bankruptcy in North Carolina, she will lose the home that she and her husband worked so hard to build and pay for."
After Feingold concluded his opening remarks, Orrin Hatch got up and blasted Feingold's amendment as an attempt to derail the entire bill and an infringement on the States' Rights regarding Homestead Exemptions (claiming the bill would be derailed because this infringement suggested in Feingold's amendment would cause numerous Senators from said States to vote against the Bill. As if any of those 55 Republican automatons would EVER vote against a bill if they were told to vote FOR it?)

Did you catch what just happened there? Orrin Hatch's problem with the amendment is that Feingold's amendment would have impacted on the "millionare homestead" laws in Florida and Texas, which allow estates of unlimited value to be kept by wealthy businessmen even if after declare bankruptcy. The laws have caused controversy in the past for the obvious reasons -- corporate officers responsible for criminal, fraudulent, or simply negligent behaviors by their companies (think WorldCom) can pump an unlimited amount of money into their own property, and that property then cannot be touched in bankruptcy proceedings.
Hatch says that requiring those homeowners to be subject to the same laws as the Republicans are, in this bill, holding all other elderly consumers to is an infringement of States' Rights.
Feingold's response to Hatch:

"The Senator from Utah has said this bill affects States rights with regard to the homestead exemption. This bill does affect the rights of Florida and Texas to have an unlimited homestead exemption, as it should. The Federal Government has an interest here in making sure wealthy people cannot abuse the system. I support that goal of stopping fraud.
The Federal Government also has an interest in making sure our senior citizens have absolute minimum protection for their homes when they are forced into bankruptcy, particularly because of unanticipated health care costs..."
Nevertheless, this goal was not shared by the Republicans.  Another amendment down, all Republican Senators voting against it.
Let's examine one more.

01-Mar
On the Amendment S.Amdt. 16
Durbin Amdt. No. 16, As Modified.; To protect service members and veterans from means testing in bankruptcy, to disallow certain claims by lenders charging usurious interest rates to servicemembers, and to allow servicemembers to exempt property based on the law of the State of their premilitary residence.
REJECTED

You read that one right. The amendment was a Democratic request to protect servicemen and women from bankruptcies by predatory lenders charging usurious interest rates, and to allow them the protections of their own state laws in potentially keeping their properties.
All Republican Senators voted against. Democrats Baucus, Biden, Byrd, Carper, Johnson and Nelson joined them.
It would seem that in a choice between supporting the troops, and supporting lenders, the decision wasn't very hard at all.

You have now gotten a glimpse into the next 2 years (at least) of what will pass for legislation in the Senate and the House. Orwell would be proud of the naming: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
No protection for the homes of the elderly and the medically infirm -- but by God, we made sure those exemptions for protected assets stayed firm. No protection for employees' earnings, pensions and retirement savings when an employer takes refuge in bankruptcy - but by God, we're gonna protect those credit card companies from too many intrusive rules that demand they properly inform their consumers of the small-print deal with the devil they've just made on that high-interest, high-limit, low-minimum-payment credit card.
Outrageous.