The Indentured Servitude Act of 2005

While large corporations continue to benefit from laws permitting them to go shopping for the most lenient bankruptcy courts in the country, consumers are about to get hammered with a stunningly regressive personal bankruptcy “reform” bill that essentially allows credit card companies and automobile finance companies to place bankrupt consumers in what used to be known as indentured servitude, a condition in which consumers are essentially working for the credit card company for as long as it takes to repay a debt.

The bill excludes debtors making more than the mean income in their state from filing for Chapter 7 bankruptcy, the more forgiving of the two versions available to consumers, would substantially raise the legal fees, would require debtors to pay for credit counseling, and would force debtors to use every dollar of their income after court-determined allowable living expenses to pay off their bills for up to five years after declaring bankruptcy.

The most common term of indentured servitude was five to seven years.

Analysts say the bill will not only dramatically increase the cost of bankruptcy but will also increase the amount of time the bankruptcy will affect the debtor’s credit, making it much harder to get the fresh start bankruptcy is meant to afford those who seek its protection as a last resort.

According to a recent Harvard study, fully half of US personal bankruptcies arise from overwhelming medical bills incurred as a result of inadequate (roughly 75%) or non-existent health insurance. Other crises, such as job loss and divorce account, for many others.

A sane response to debts incurred from medical crises would be to guarantee comprehensive health care for all Americans, as opposed to putting them through hell for five years after they’ve collapsed under the weight of those debts.

The “average” debtor in the Harvard study was 41 years old, female, with children and some college education and an income of about $25,000 in the year prior to filing for bankruptcy. The overwhelming majority of debtors in the study were middle- and working-class families. Wealthier Americans will still be able to take advantage of a variety of asset sheltering maneuvers that can decrease the impact of a bankruptcy, leaving them with considerably more assets in the aftermath than is the case with most lower income debtors.

Here’s what Congerssman Bernie Sanders has to say about the bill:

It makes it harder for average people to file for bankruptcy protection; it makes it easier for landlords to evict a bankrupt tenant; it endangers child support payments by giving a wider array of creditors a shot at post-bankruptcy income; it allows millionaires to shield an unlimited amount of value in homes and asset protection trusts; it makes it more difficult for small businesses to reorganize, while opening new loopholes for the Enrons of the world; it allows creditors to provide misleading information; and it does nothing to reign in lending abuses that frequently turn manageable debt into unmanageable crises. Even in failure, ordinary Americans do not get a level playing field.

Eschaton’s Duncan Black has kindly provided the contact information for House Minority Whip Steny H. Hoyer in the hope that Democrats will inundate the Congressman with instructions to rally Democratic representatives against the bill. 18 Senate Democrats voted for the Senate version of the bill, and at least 16 House Democrats have expressed support for it.

Democratic politicians have no business voting for such a regressive, punitive, corporate-friendly bill; doing so flies in the face of everything Democrats once stood for. Call, fax or email Congressman Hoyer to demand that he help the Democratic party remember that.

Here’s what I told the Congressman in a fax:

Dear Congressman Hoyer:

I’m writing to urge you, as House Minority Whip, to do everything you can in uniting Democratic Representatives in opposition to the draconian bankruptcy bill now under consideration. Rarely does one encounter a bill so nakedly favorable to a single industry and so hostile to middle- and working-class consumers, the hard-working people who are supposed to be among the primary Democratic constituencies.

Medical bills account for nearly half of all bankruptcies, with consumers running up crushing credit card debt in an effort to pay huge medical bills arising from inadequate or no health insurance. Guaranteeing comprehensive health insurance to all Americans would therefore eliminate or reduce the value of some 800,000 bankruptcies annually and would obviously be a far more humane way of resolving the problem.

Additionally, any bankruptcy bill that fails to regulate the usurious interest rates charged consumers with poor credit or even a few late payments is unacceptable. The spectacle of Democrats supporting a bill that legalizes what amounts to indentured servitude to credit card companies and health care providers is, in a word, sickening. This is not what Democrats stand for, and as Minority Whip, I hope you won’t stand for Democratic support of this bill.

Regards,

Weldon Berger

Give ‘em hell.