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Posted on April 1, 2005

Bailey Porter

In a climate where credit card debt and the cost of healthcare is forcing many families to turn to bankruptcy as the last resort, the Senate passed an administration supported bill that would make it harder for middle-class Americans to file for bankruptcy.

Some 3.5 to 20 percent of the 1.6 million who filed last year would be disqualified under the new legislation. A new income test would decide if the filers could pay at least $6,000 over five years and, if so, they would be forced to file under Chapter 13. This would cause most middle class wage-earners who can theoretically make the $100 monthly payment to make payments to credit card companies at exorbitant interest rates even after they have filed for bankruptcy. Currently, bankruptcy judges find that 70 percent file under Chapter 7 and they do not have the kind of income to make a repayment plan like the one in the new legislation.

Sponsors of the bill claim that people who file for bankruptcy are abusing the system. Sen. Charles Grassley (R–Iowa) even said the current system “contributes to the fraying of the moral fiber of America.”

Fraying of the moral fiber? The whole point of bankruptcy law is to give people somewhere to turn when they exhaust all other resources. While there is a small percentage of people who abuse bankruptcy law – the nonprofit group American Bankruptcy Institute reports 3 percent – most of the families who applied last year probably wished they had enough financial stability to pay off their debts. But the whole point is that something is making that impossible.

Elizabeth Warren, a Harvard law professor, co-wrote a study that found a broken healthcare system is to blame for bankrupting middle-class Americans, not irresponsible credit card users.

Two-income families today spend 21 percent less on clothing, 22 percent less on food and 44 percent less on appliances compared to one-income families a generation ago. But the average family spends 61 percent more on health insurance than their parents spent a generation ago.

Even with health insurance, many Americans must turn to getting a second mortgage on their houses, depleting their checking accounts and using credit cards, Warren told “NOW” on PBS.

“We don’t form a permanent underclass in America,” Warren said, but that is what could happen if Bush signs the bill and prevents families from using bankruptcy to get a fresh start.

The legislation would do more damage to the moral fiber of this country than the current system that provides a safety net for families in danger of hitting rock bottom. Families suddenly upturned by an illness or accident that racks up medical expenses are not trying to con credit card companies, other lenders or the U.S. government. So why is the Bush Administration and Congress sending this bill through so quickly? And why now? Loan sharks have been circling bankruptcy reform for eight years. In 2000, Clinton vetoed a nearly identical bill because he said it was unfair to ordinary debtors and hardworking families who fall on hard times.

Could it be the $25 million in donations the credit card industry has made to federal candidates and political parties since 1999? Or the $76.2 million from commercial banks?

Robert Scheer wrote, “The bill turns the federal government into a guardian angel of an industry gone mad.”

He reports that although credit card companies claim these people file to cheat the system, the companies aren’t hurting. Last year was their most profitable in more than 15 years.

Bankruptcy law might need reform, but without healthcare reform to go with it, this bill is a disaster for middle-class America.

Bailey Porter, a senior journalism major, is editor in chief of the Campus Times. She can be reached by e-mail at

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