Bankruptcy Boondoggle

Opinion & Analysis:

Low Poll Numbers

Resoundingly and legitimately, George W. Bush beat John Kerry in the 2004 Presidential election. But in just a very short period of time and starting in first quarter of 2005, the President’s poll numbers started to slide downward. And the slide has not ceased ever since.

The administrations very first huge blunder and miscalculation of 2005 was when the President signed into law the new Bankruptcy bill. And I want to say I believe this will haunt the administration and each and every Senator and Congressman who voted for it. And there is good reason for that judgment and will explain why throughout the rest.

I also suspect that Senators and Congressmen on both sides of the aisle alike, will have a hard time being re-elected in 2006 and 2008. Why? Because and to put it bluntly, this looks like a payoff to the credit card industry who lobbied congress for eight years to have the laws changed to favor them over the best interest of the general public. Essentially amounting to the credit card industry having their own way with congress. And they gave to their future adversaries, all the political ammo they need to defeat them.

Sliding Poll Numbers, It All Started Here

This single piece of legislation (new bankruptcy bill) , was the start of it all and did more damage to the credibility of the Bush administration, than Iraq and fuel prices combined.

I didn’t take this critique lightly. It took me five months just to cool down and express my opinion.. I have been a staunch supporter of this administration all along. I put an enormous amount of my own time and money into all of this and when I see them just frittering the whole ball of wax away, its time to stand up and say something.

The pro argument for the bankruptcy bill was (is), there is this enormous amount of fraud. More specifically, referring to consumers running up massive debt and credit card bills with the expressed intention to file bankruptcy to wipe away all debts and keep what they bought. But that just doesn’t pan out and prove up.

Chart by TW, info gleaned from CNN/USAtoday poll

The Evidence

I started checking around to underscore the arguments both pro and con and one of my stops was the DOJ website, where the FBI states and estimates there is a 10% fraud rate involved in all bankruptcies filed. So I took this information to the American Bankruptcy Institute (ABI), where I talked to the resident scholar there about the claim on the DOJ website of a 10% fraud rate. He told me he saw that too but that they don’t offer any support for those numbers. So I then asked the scholar what the American Bankruptcy Institute (ABI) numbers were and he said according to their last scientific study which was done by two Creighton University Law professors Culhane and White in 1999, that in the 2000 model (1999 study), less than 3.7% would be required to convert from chapter 7 to chapter 13. The name of the study is (STUDIES: Creighton: Taking the New Consumer Bankruptcy Model For a Test Drive: Means-Testing Real Chapter 7 Debtors - Marianne B. Culhane, Michaela M. White)

I thought this was a sizable difference and wanted to confirm my theory from one more source.. So I went to the top bankruptcy attorney here in the capital city of Harrisburg, Pa.. Attorney Les Jacobsen told me that this was a really bad bill just passed by the congress and signed into law by the President. He also stated that here in this region, there is a less than 1% fraud rate.

More Evidence

Bankrate.Com writer Barbara Whelehan did some impressive research and wrote two articles on the subject. The first one is “Bankruptcy bill bad for debtors” and a follow-up piece, “Bankrate readers weigh in on bankruptcy” . Her conclusions were basically the same too. I would recommend anyone interested to read both.

She essentially claims its the credit card industry who is at fault for the whole charade. Here is one of her quotes, “ This is not a clear-cut story of right vs. wrong, where protagonists and antagonists can be clearly identified. Surely some consumers use credit cards to spend, spend, spend without any intention of repaying their debts. But I don't believe this is usually the case, and I'm not inclined to see this as the story of greedy, deadbeat consumers who have been abusing the hapless credit card industry. In fact, I would tend to cast the credit card industry in the role of evil villain, mainly because of its widely adopted a universal default policy that jacks up interest rates to 25 percent and higher if consumers make one billing misstep with an unrelated creditor.”

In another piece of documented evidence put together by Barbara Whelehan, she writes,
“In another scientific study released in 2001, titled "Illness and injury as contributors to bankruptcy," revealed that 50 percent of those surveyed who had filed for bankruptcy had a medical basis for doing so. During the two years leading up to bankruptcy, about 40 percent of these folks lost phone service, about the same number opted not to get prescriptions filled, roughly half missed an important doctor or dental visit and one-fifth went hungry because of their dire financial situations”. Should folks suffering such hardships be denied a Chapter 7 bankruptcy and undergo a stringent means test originally designed for tax cheats?


Even More Evidence

Conservative talk show host Dave Ramsey (DaveRamsey.com), came out against the bankruptcy bill and reached the same conclusion as Bankrate.com writer Barbara Whelehan.

This is a “must see” video clip featuring Dave Ramsey on the Wall St. Journal on CNBC that I found at another conservative blog website by Trey Jackson (treyjackson.typepad.com). It requires windows media player to view. To watch, click on this link: Dave Ramsey Clip  which takes you to a page on Trey Jackson's blog and then click on link that says "watch" just above a picture of Dave Ramsey.

Here is a quote from Dave Ramsey that is on the video clip: “ This is bought and paid for by the bankers baby and its anti consumer, and its really a bad plan” To anyone who doesn‘t have the time to research it themselves, Dave clarifies and spells out just how wrong this bill is.


The Washtimes.com also ran an editorial by Alan Nathan titled: Targeting the little guy. Here is the first paragraph of the article, “Under the Shakespearean maxim of "though all things foul would ware the brows of grace, yet grace must still look so," we have an avoidable tragedy of our own taking place in Washington. In America today, there's intense debate over individual responsibility falling prey to reliance on government when personal welfare becomes vulnerable to the elements of life.” In the article, Nathan expands on and reaches the same conclusions as Bankrate.com writer Barbara Whelehan and Conservative radio talk show host Dave Ramsey.

To read the article in its entirety, here is the link: http://www.washtimes.com/op-ed/20050329-104540-8825r.htm

How Low Will The Polls Go?

If the administration wonders where they got off track, it is obvious it began with signing into law, “this gift to special interest only bill“.

I recently read in a Time magazine article where the President doesn’t like to be told that he is wrong and is rapidly becoming isolated because of the attitude he takes regarding those who give him information concerning policy making decisions. I am beginning to wonder if isolated means “ controlled special interest environment“.

If the administration is to turn it all around, perhaps this would be a good place to begin to start righting some wrongs. Otherwise, according to my calculations, it is possible to see poll numbers in the low 30’s by the end of the year. And that spells trouble for all hard earned policies in place and the elections in 2006 and 2008.. This could also very well end up being the biggest shake-up of incumbents ever seen.

TW 9/23/2005

Related Information On The Net

A Letter To Sen. Arlen Specter and Sen. Pat Leahy
A group of 92 professors at prestigious universities across the country found many problems with the bill and tried unsuccessfully to urge lawmakers to vote against its passage. Their area of expertise is bankruptcy and commercial law. They warned "The bill is deeply flawed, and will harm small businesses, the elderly and families with children" (source link: Bankrate.com)

Link to Letter: Flaws Of The Bill  (pdf file)

Update 5/12/2006  7 Months later

Lawyer Groups Representing Thousands of Lawyers Challenges New Bankruptcy Law

(AXcess News) New York - Lawyer organizations are challenging the new bankruptcy law, saying it illegally restricts the advice attorneys can give and makes it harder for clients to maneuver through the bankruptcy system. Story:AXcessNews.com

A Sampling of What America Thinks About the New Bankruptcy Law

• Arkansas News.Com Poor-written, odious bankruptcy bill looming ahead  "the worst piece of legislation passed by Congress in the past decade"

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• The Virginian-Pilot  Bankruptcy laws now protect creditors "credit card companies have a new ability to force even those who successfully file bankruptcy to repay them over decades"

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• Marketwatch.com The do-nothing approach to debt  Bankruptcy attorney: Unpaid bills are alternative to filing "For consumers who are overwhelmed by debt and worried about the stricter bankruptcy law that goes into effect Monday, a bankruptcy attorney offered this novel approach: Stop paying your bills".

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• The Clarion-Ledger Bankruptcy bill 'abominable' idea   "The banking and credit lobbies that pushed through that abominable bill refuse to admit their own bad judgment and continue to bombard the citizens with a barrage of TV advertising and bulk mailings"

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• Gainesville Times.com Bankruptcy changes may be difficult for struggling families "Those most at-risk under this new law will be the middle class families that are going through a serious illness, have lost a job or are going through a divorce. Debts should be paid and the old law has been abused, but this new law may be another version of the "good, the bad and the ugly."

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• The Boston Globe.com Bankruptcy law strains local debtors ''We're talking about elderly people who are living on fixed incomes, depending on Social Security checks or the meager interest they earn on [certificates of deposit] to pay their bills," said Whelan. ''They're not going into debt to buy luxury items. They're using credit to pay for food and medication."

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• Detroit Free Press.com Bankruptcy won't forestall foreclosure  "When the landmark federal law making it tougher to file personal bankruptcy goes into effect Monday, those in danger of foreclosure on their houses because of delinquent mortgage payments will have one less tool to delay the process.

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• Black Enterprise.com  Bankruptcy Law Remains Flawed ; Adding Hurricanes' Confusion and Loss; Only Heightens Need to Change Legislation  "No one wants to protect people who would otherwise scam the system. But it was a bad law before the hurricanes".

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• Fort Wayne.com Bankruptcy boondoggle  "The new federal bankruptcy law takes effect, and it will cause hardship for many citizens".

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• NBC Kare11.com Dying to pay, new bankruptcy laws hurt seriously ill   "New bankruptcy rules that went into effect on Monday, don't just affect those who've run up their credit cards due to poor spending habits. They also affect people who have little choice about their cash flow, people who'd give anything 'not' to be in the situation they're in".

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• Picayune Item.com Miss. bankruptcy judge calls new federal law 'meat-ax approach'  “There could have been some reform to better the system, but this is a meat-ax approach rather than doing it in a studied way,” said U.S. Bankruptcy Judge David Houston of Aberdeen.

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• Gilroy Dispatch.com Burden of Bankruptcy About to Grow   "People who are thinking about filing for bankruptcy are usually weeks or even days away from having their homes seized, cars repossessed or worse, and starting Oct. 17, the paperwork process of having their debt wiped away will take even longer".

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• The Reporter.com Bankruptcy law benefits corporations, not people  "The new bankruptcy bill was passed by elected leaders in Washington, all of whom were elected by the votes of individuals. Yet, the new law clearly benefits major corporations and not individuals".

inserted: 10/20/2005 TW

Related Information On The Net

 Links to the Amendments and How They Voted on Them   (Senate version S.256)

( in reverse chronological order )

00044 10-MarS. 256 On Passage of the Bill Passed S. 256 As Amended; Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. (Vote On Final Bill As Amended)

00042 10-Mar S. 256 On the Amendment S.Amdt. 121 Agreed to Talent Amdt. No. 121; To deter corporate fraud and prevent the abuse of State self-settled trust law.

00041 10-Mar S. 256 On the Amendment S.Amdt. 129 Rejected Schumer Amdt. No. 129; To limit the exemption for asset protection trusts.

00040 10-Mar S. 256 On the Amendment S.Amdt. 112  Agreed to Durbin Amdt. No. 112; To protect disabled veterans from means testing in bankruptcy under certain circumstances

00039 10-Mar S. 256 On the Amendment S.Amdt. 83 Rejected Leahy Amdt. No. 83; To modify the definition of disinterested person in the Bankruptcy Code.

00038 10-Mar S. 256 On the Amendment S.Amdt. 105 Rejected Akaka Amdt. No. 105; To limit claims in bankruptcy by certain unsecured creditors.

00037 10-Mar S. 256 On the Amendment S.Amdt. 69 Rejected Kennedy Amdt. No. 69; To amend the definition of current monthly income.

00036 10-Mar S. 256 On the Amendment S.Amdt. 70 Rejected Kennedy Amdt. No. 70; To exempt debtors whose financial problems were caused by failure to receive alimony or child support, or both, from means testing.

00035 09-Mar S. 256 On the Amendment S.Amdt. 68 Rejected Kennedy Amdt. No. 68; To provide a maximum amount for a homestead exemption under State law.

00034 09-Mar S. 256 On the Amendment S.Amdt. 67 Rejected Dodd Amdt. No. 67; To modify the bill to protect families, and for other purposes.

00033 09-Mar S. 256 On the Amendment S.Amdt. 62 Rejected Boxer Amdt. No. 62; To provide for the potential disallowance of certain claims.

00032 09-Mar S. 256 On the Amendment S.Amdt. 66 Rejected Harkin Amdt. No. 66; To increase the accrual period for the employee wage priority in bankruptcy.

00031 09-Mar S. 256 On the Amendment S.Amdt. 110 Rejected Durbin Amdt. No. 110; To clarify that the means test does not apply to debtors below median income.

00030 08-Mar S. 256 On the Amendment S.Amdt. 89 Rejected Feingold Amdt No. 89 ; To strike certain small business related bankruptcy provisions in the bill.

00029 08-Mar S. 256 On the Cloture Motion Agreed to Motion To Invoke Cloture On Bill S. 256; Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

00028 08-Mar S. 256 On the Amendment S.Amdt. 47 Rejected Schumer Amdt. No. 47.; To prohibit the discharge, in bankruptcy, of a debt resulting from the debtor's unlawful interference with the provision of lawful goods or services or damage to property used to provide lawful goods or services.

00027 07-Mar S. 256 On the Amendment S.Amdt. 128 Rejected Santorum Amdt. No. 128; To promote job creation, family time, and small business preservation in the adjustment of the Federal minimum wage.

00026 07-Mar S. 256 On the Amendment S.Amdt. 44 Rejected Kennedy Amdt. No. 44; To amend the Fair Labor Standards Act of 1938 to provide for an increase in the Federal minimum wage.

00025 03-Mar S. 256 On the Amendment S.Amdt. 49 Rejected Durbin Amdt. No. 49; To protect employees and retirees from corporate practices that deprive them of their earnings and retirement savings when a business files for bankruptcy.

00024 03-Mar S. 256 On the Amendment S.Amdt. 24 Rejected Rockefeller Amdt. No. 24; To amend the wage priority provision and to amend the payment of insurance benefits to retirees.

00023 03-Mar S. 256 On the Amendment S.Amdt. 42 Rejected Schumer Amdt. No. 42; To limit the exemption for asset protection trusts.

00022 03-Mar S. 256 On the Amendment S.Amdt. 38 Rejected Durbin Amdt. No. 38; To discourage predatory lending practices.

00021 03-Mar S. 256 On the Amendment S.Amdt. 37 Rejected Nelson (FL) Amdt. No. 37; To exempt debtors from means testing if their financial problems were caused by identity theft.

00020 03-Mar S. 256 On the Amendment S.Amdt. 31 Rejected Dayton Amdt. No. 31.; To limit the amount of interest that can be charged on any extension of credit to 30 percent.

00018 02-Mar S. 256 On the Amendment S.Amdt. 32 Rejected Corzine Amdt. No. 32; To preserve existing bankruptcy protections for individuals experiencing economic distress as caregivers to ill or disabled family members.

00017 02-Mar S. 256 On the Amendment S.Amdt. 29 Rejected Kennedy Amdt. No. 29; To provide protection for medical debt homeowners.

00016 02-Mar S. 256 On the Amendment S.Amdt. 28 Rejected Kennedy Amdt. No. 28.; To exempt debtors whose financial problems were caused by serious medical problems from means testing.

00015 02-Mar S. 256 On the Amendment S.Amdt. 15 Rejected Akaka Amdt. No. 15; To require enhanced disclosure to consumers regarding the consequences of making only minimum required payments in the repayment of credit card debt, and for other purposes

00014 02-Mar S. 256 On the Amendment S.Amdt. 17 Rejected Feingold Amdt. No. 17.; To provide a homestead floor for the elderly.

00013 01-Mar S. 256 On the Amendment S.Amdt. 16 Rejected Durbin Amdt. No. 16, As Modified.; To protect service members and veterans from means testing in bankruptcy, to disallow certain claims by lenders charging usurious interest rates to service members, and to allow servicemembers to exempt property based on the law of the State of their pre-military residence.

00012 01-Mar S. 256 On the Amendment S.Amdt. 23 Agreed to Sessions Amdt. No. 23; To clarify the safe harbor with respect to debtors who have serious medical conditions or who have been called or ordered to active duty in the Armed Forces and low income veterans.

 Opinion & Analysis:

Bush to Senate: Bring Dignity To Legislative Process and Reject Special Interest Influence Money!

President Bush during a White House Rose garden news conference to defend his nomination for Supreme Court Justice Harriet Miers on Oct. 4, 2005, assailed the U.S. Senate for allowing "special interest money" to influence the legislative process that is not in the best interest of the American public.  (link to press conference)   Then scroll down the page until it says "Pres. Bush Rose Garden News Conference" and click on the link, which requires RealPlayer to watch. To only view the Presidents statement regarding special interest money, that segment is located at exactly 43:27 minutes into the conference clip. But I would recommend starting at 40:15 into the clip to get the whole gist of the discussion at hand.

During the news conference, the President suggested that Senators should start bringing dignity to the legislative processes in congress, which includes the Senate confirmation hearings. Implying that the Senators should give Harriet Miers a fair hearing and vote based on her credentials the President believes are impeccable.

Senator Arlen Specter (Pa) who chairs the Senate Judiciary Committee, was quoted on Sunday morning as doubts grow about her abortion views saying, "Harriet Miers will face vigorous questioning on privacy rights and her qualifications for the Supreme Court". (source: AP)

In contrast, there is a storm brewing over alleged "monied special interest influenced" legislation that first came before the Senate's Judiciary Committee in early 2005. Which subsequently was then passed by the Senate (Bankruptcy Bill: S256) and then was sent to the House of Representatives for pressured quick approval. The President then signed the bill into law in April of 2005 designed to take effect on Oct. 17, 2005.

At the center of the storm is where 90 Law Professors from prestigious universities all across the nation, and of all political persuasions that specialize in bankruptcy and commercial law, wrote a letter on Feb. 16, 2005 addressed to Senate Judiciary Committee Chairman Senator Specter (Pa) and Co-Chair Senator Leahy (Vt) urging the Senators not to pass the bill. The Law Professors warned and charged in the letter "The bill is deeply flawed, and will harm small businesses, the elderly and families with children" (link to letter)> Flaws Of The Bill) (pdf file) 

No amendments were ever successfully made in either the Senate or Congress to address the 90 law professors main and "equal rights" issues. The bill was drafted and rammed through quickly in a tightly controlled and closed door environment. Every time there was a proposed amendment to correct the inequities, it would quickly be discarded (voted down). Open debate was mostly limited to a short raucous protest in House of Representatives right before their vote..

TW 10/9/2005