Over Our Heads In Debt

There are a few cliches that we are familiar with, while knowing they really are not reality, but invention. The Welfare mom in a Cadillac comes to mind, as well as the anchor baby. For the 109th Congress, there was the high roller bankrupt.

Under the fiction that consumers were profligate and wound up avoiding well-earned debt by high living, the GoPerv-dominated Congress of 2005 passed punitive legislation restricting the ability to get out from under massive debt by filing a simple bankruptcy and avoiding paying off overwhelming debt. The fiction of high-rolling spenders overshadowed the reality of abusive lender sales and loan origination practices that gave high fees to agents for placing expensive loans, regardless of the consumer's ability to pay.

Since the passage of bankruptcy legislation that raised the costs, because of complicated paperwork and required counseling, to 50% to 100% over its previous costs, bankrupty filings decreased in 2006. In 2007, with huge increases in irresponsible and high-pressured loan pushers, the levels rose again to close to their former level, even with that increased expense. The lenders had prevailed over the consumer in more than just lobbying Congress.

\The slowing economy, job losses, and the housing and credit crisis are sure to feed more bankruptcies, experts said.

"They will continue to go up because the economy is going into the ditch," Mr. Westbrook said.

Bankruptcy experts said there are several reasons why bankruptcy filings went down under the new law. They indicate the increased challenges that debtors face in trying to regain financial health.

"By far the biggest effect is that it's raised the cost of bankruptcy very substantially – by 50 to 100 percent," said Mr. Sommer, the consumer bankruptcy attorney leader. "Attorney fees have gone up 50 to 100 percent."

That's because of more paperwork on short deadlines and increased liability for lawyers. Court filing fees also have increased.

"Bankruptcy is just flat far more complicated and far more expensive," said Charles Chesnutt, an Addison bankruptcy lawyer. "I've had to change the way I work because the additional requirements make it far more difficult to properly do a bankruptcy."

Mr. Ross, his client, said, "The law really caused me to go through a lot of paperwork to make sure I qualified every step of the way."

Contrary to what some may believe, the new law's income test hasn't emerged as the main roadblock to bankruptcy, experts said.

The test requires anyone with income above a state's median income to file for Chapter 13.

"It's not having that much effect because there were never that many people who could afford to pay their debts [in bankruptcy], and the means test has just proven that," Mr. Sommer said. "Most people were not living high on the hog."

Some consumers believe that bankruptcy is no longer available to anyone, attorneys said.
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Legislation pending in Congress could change bankruptcy laws further.

The legislation would allow bankruptcy judges to alter the terms of a mortgage on a debtor's principal home.

Lenders oppose the proposal, saying it would raise mortgage payments for consumers by allowing courts to write down the value of home mortgages in the event of bankruptcy by the borrower.

No surprise there, that the same lenders who have been paying agents for placing higher fees than they could afford on the consumer they sold into debt now don't want to let any pressures be eased from their backs.

If you, like me, get a mailbox full of offers to lend you money constantly, and see endless ads about how easy it is to get financing for those wildly impractical vacation trips, jewelry, luxuries, you know how deceptive those lenders are about what you can and do buy.

All the sympathy of a GoPerv Congress built huge barriers to a consumer surviving his getting into the hands of lenders. It's overdue that in the face of the disaster that abusive credit practices have created, the object of individuals' survival become at least as important as the lenders' demands. In the interests of the country's economic health, a big dose of reality is overdue.

Easy credit should bear consequences for the lender, not just the bamboozled borrower. For our country's economic health, controls on lending need to be enabled, and bankruptcy eased.

The U.S. needs to give the respect to consumers that it has for too long extended only to lenders.

Meeting those rising costs of living does not need punishment, it needs encouragement.