Bankruptcy law is bonanza for banks

By Larry Hales

On March 14 of this year, the Senate passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The bill is grossly misnamed.

This is no consumer protection act but a boon to predatory banks and credit card companies that will persecute and prosecute the multinational workers and the poor. The Bush administration is railroading the bill through Congress. President George W. Bush plans to sign it as soon as the House passes the legislation after returning from recess. It will be implemented later this year.

Bankers’ dream, consumers’ nightmare

Banks and credit card companies are receiving presents early this year. It’s Christmas in springtime for them, thanks to not just the conservatives in the Senate, but the liberals as well. The bill will amend Chapter 7 and Chapter 13 bankruptcy laws, which under current law free up consumers/workers from the crippling debt that weighs heavily on over 50 percent of adults in this country.

Many workers and poor people are saddled with medical bills, have lost jobs or have been victims of predatory lending practices such as exorbitant interest rates, illegal penalties and fees for late payment. The new law is racist and will be especially hard on the long-term unemployed and those exploited by poverty wages.

As prices of consumer goods and energy go sky high, and tuition costs hit millions of students, it becomes evident that the possibility of becoming debt-free is a myth. Under current law, Chapter 7 bankruptcy provides at least some relief for those burdened by unforeseen catastrophes because it virtually frees people from debt, or the major part of it. Over 70 percent choose Chapter 7 over Chapter 13, which merely lowers monthly payments. The courts monitor that repayment process.

Under the amended law, it will be extremely difficult, if not impossible, for families to petition for bankruptcy. The bill seeks to establish a means test for Chapter 7 filing; the median household income would be the bar, and if the household income is above the state’s annual median, then the household would be ineligible for filing under Chapter 7 and would be relegated to Chapter 13 repayment over a five-year program.

The would-be filer would have to attend credit counseling classes for at least six months and pay for them. And if the hurdle of eligibility for filing Chapter 7 is cleared, lawyers will be charging higher fees to the filer because of added paperwork and almost inevitable increased court time. The IRS will determine what is an essential household expense and what is not, all in an effort to force repayment and squeeze the living standards of the people to avoid incurring debt, which is almost impossible.

The blatant disregard for workers and the poor is obvious and inevitable in this society. The shock waves from the ramifications of this bill have yet to be felt.

Add the dismantling of the welfare system and the proposed privatization of Social Security, and one gets the sense that the boom in the prison-industrial complex will go nuclear as more and more people have fewer and fewer options.

Rarely reported is how the bill will affect youth, especially recent college graduates. Partly because of student loans for rising tuition and housing costs and credit card debt, adults from 25 to 34 have the second-highest rate of filing for bankruptcy. Those in the 35 to 44 category have the highest rates.

During the first week of school on college campuses, credit card companies are ubiquitous. They give out t-shirts, sports bottles and key chains and entice young people to sign up for credit cards, all the while warning that the students will need a credit card to pay for textbooks. Many students fall into the trap and splurge, racking up credit card debt, adding to debt from tuition and housing, if there is any, on the campus.

After graduation, the gravity of all this sets in. Good-paying jobs are scarce, with or without a college degree, and many youth take jobs outside of their degree focus. The jobs are usually low-paying with inadequate benefits or none at all. The possibility of paying back a college loan becomes moot, and the interest accrues.

Youth are faced with a bleak future and the new bankruptcy law will make the future even more unbearable for the next generations, not to mention the elderly, already squeezed between the high cost of health care and meager income from pensions and Social Security.

This bill is very different from Chapter 11 bankruptcy, which frees corporations from huge debt. The law entitles them, with the approval of the bankruptcy court, to tear up union contracts, downsize wages and benefits like health care and pensions, and increase work loads. The airlines over the past four years have been rife with filings for Chapter 11. Big businesses will go on receiving breaks at workers’ expense, while the bosses’ pay goes up.

The new changes in the bankruptcy law, so typical of the abuses against workers and the poor, prove beyond doubt that the government cares nothing about the state of the working class and caves to its capitalist rulers at an accelerated rate. It is becoming more evident that an independent movement is needed in the streets. Youth need to become increasingly involved and at the forefront of the struggle against capitalism to secure a better future for both older generations and the generations to come.

Hales is an organizer for FIST (Fight Imperialism, Stand Together). Contact FIST at fist@workers.org.


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