We were privileged to work as part of a broad coalition alongside the late great Senator Paul Wellstone (D-MN) as he virtually singlehandledly stopped the bill for several Congresses. Indeed in 1998, he was the only Senator voting against the draconian proposal. This year, Senator Teddy Kennedy (D-MA) led a fierce 2-month fight against the bill, but it still passed the Senate 74-25 and then the House 302-126.

The sweeping amendments to the bankruptcy law were enacted due to a massive increase in campaign cash, not an increase in abuse by consumers of the bankruptcy system. Indeed, every independent study has documented that the real reason consumers filed for bankruptcy was, and is, financial hardship. Over 90% of filings are due to job layoffs, divorce, or illness.

An important new study, Get Sick Go Broke by bankruptcy scholar Elizabeth Warren of Harvard Law School and colleagues at Harvard Medical School found that many consumers are facing financial hardship either because they do not have health care or don't have health care that's good enough. They put their medical bills (due to co-pays, non-covered services, deductibles or lack of coverage) on usurious credit cards, then they get sicker, or laid off, and the bottom falls out.

Illness begot financial problems both directly (because of medical costs) and through lost income. Three-fifths (59.9 percent) of families bankrupted by medical problems indicated that medical bills (from medical care providers) contributed to bankruptcy; 47.6 percent cited drug costs; 35.3 percent had curtailed employment because of illness, often
(52.8 percent) to care for someone else. Many families had problems with both medical bills and income loss.

The law makes it harder and more expensive to file for bankruptcy. Then, if you do manage to navigate the minefield, which now requires you to attend credit counseling before filing (and you could get ripped off there, as I discuss below) it makes it harder to obtain a Chapter 7 Fresh Start bankruptcy by forcing most consumers into a Chapter 13 five-year repayment plan. The lenders' propaganda mill spews out tons of spin claiming that anyone below their states' median income can still file Chapter 7-- they forget to tell you about the means test and about the many legal motions available now to creditor lawyers to challenge your income status. Even if you do qualify for Chapter 7, you may give up trying to get in because you cannot afford to challenge the creditor motions in court. This article has several consumer lawyers critquing the means test and other aspects of the law. The means test is a complicated rule designed to calculate your income available for payback after deducting living expenses. But the living expenses are not based on real-life, they are based on non-real-world IRS rules.

Consumers will have to pay to go to "approved" credit counselors before filing. That's kind of like teaching gun safety to someone with a bullet hole in their foot. Too little, too late. Worse, the credit counseling business is full of scam artists under investigation by the IRS (here's a summary and another), FTC and state Attorneys General. Some of the worst won't be "approved for bankruptcy," but will all the bad guys be blocked out? With all the new business, more fly-by-nighters may sign up. Here's an excellent report by the National Consumer Law Center and Consumer Federation of America.and CFA.

In addition to the campaign donations, the industry spent millions on a successful (inside the beltway anyway) PR campaign alleging that people who don't pay their bills are personanly irresponsible. That resonated on the hill, but the campaign cash certainly helped.

The worst problem with the bill is that it fails to deal with corporate irresponsibility. It does nothing to rein in unfair credit card practices. That's not surprising, since the highly profitable credit card industry made massive donations and stands to benefit the most from more consumers being forced into repayment plans. Their donations have always been huge, but many Americans may not know that the President's number one contributor in the 2000 election wasn't Enron, wasn't Halliburton and wasn't Exxon. It was MBNA Bank, which in 2004 surpassed Enron as Bush's top "career donor", according to the a report by the watchdogs at the Center for Public Integrity.

We maintain an archive of bankruptcy related bill materials here, with links to coalition letters and other documents, and here at Truthaboutcredit.org we have links to testimony, reports and fact sheets for consumers on needed credit card reforms. More information in this previous blog also.