I love the smell of compassionate conservatism in the morning:
Bankruptcy can clear away most debts. Yet sweeping changes to federal law in 2005 — pushed by the banking lobby — complicated that process and more than doubled the average cost of filing, to more than $2,000. Many low-income debtors must save for months before they can afford to go broke.
In some states, courts allow creditors to charge high interest rates for years after a lawsuit is decided in their favor. In others, creditors can win lawsuits by default and seize wages and bank accounts without a case ever appearing before a judge.
Read the whole piece.
brendancalling
thank you, senators grassley and carper!
stuckinred
Wonder what Barbara Bush would say about this?
Der Blindschtiller
I just read that more Americans oppose the student loan reforms than support them. Americans are also opposed to financial reform. We “hate” bankers, yet support giving them massive subsidies and oppose any efforts to keep them from robbing us blind. We’re against deficits, but refuse to cut entitlements, defense and security. We’re against taxes, but want all sorts of government services. Americans supported the bankruptcy bill and are getting ready to throw their support behind the very people who helped create this mess.
At this point, I don’t give a flying fuck if Americans are getting screwed over. We’ve brought it on ourselves.
Okay, okay, I don’t really believe this, but just needed to rant.
I guess I can take solace that it’s 2:00pm where I live, so I can start drinking…
(Soon to be +5)
WyldPiratd
While the Rethuglicans were in charge when bankruptcy reform passed, our VP, then Senator Joe “Big Fucking Deal” Biden, supported the bankruptcy bill.
The bottom line is that the assholes in Congress don’t do what’s best for the “little guy” or the average “joe Sixpack”, they legislate to the benefit of the donors that own them.
Land of the free, home of the well-bought Congress critters and all that happy shiznit.
soonergrunt
@Der Blindschtiller: So you just read that Americans are just like everybody else?
That’s not the problem. The problem is that one of our political parties is populated with hucksters and whackaloons. The other party is filled with people who have only ever been close to a spine when they visited the dinosaur exhibit in a museum.
The “representatives” part of the representative democracy aren’t doing their part.
Matt
@WyldPiratd: Beat me to it. As we’ve learned in the last year, lots o’ Dems are just as complicit in selling out their constituents.
General Egali Tarian Stuck
I love a blog that peaks my anger first thing in the morning.
And word is that George Bush is making a comeback accordng to recent polling.
This country is too stoopid to go on for much longer.
gbear
Wasn’t it Joe Biden that we have to thank for that bankruptcy bill?
edit: I see WyldPiratd got there already.
Comrade javafascist
Won’t someone please think of the poor multi-billionaires?
Doug
I’m a collections attorney – I’ll get that right out in front – I couldn’t get past the first two paragraphs: Woman knows she owes money, doesn’t bother going to court when she gets sued, and is surprised when they subsequently take money out of her bank account.
I get a lot – and I mean *a lot* – of people who just stick their heads in the sand, hoping that if they ignore it their problems will go away. My approach isn’t universal, but if someone calls my office and tries to work out a payment plan, they’re almost always going to get a better deal than if they don’t respond at all, and I find assets in a bank account or a paycheck to garnish on my own.
That said, I think the bankruptcy bill was unnecessarily harsh and, frankly, doesn’t help anyone get more money paid toward their bills. Under the old bankruptcy law, it was a very, very rare thing for me to get notice of bankruptcy from a person who I thought had any real assets to pay my client’s debt. Instead, it gave me (and the lower level account manager I was probably working with) a good, clear cut excuse to close the file. Neither of us had to try to convince some higher decision maker that the person really didn’t have the means to pay and that we weren’t just being lazy or soft about the account.
(O.k., I read a little more – the 27.5% postjudgment interest is ridiculous. In Indiana, the pre-judgment interest rate is 8% or whatever the contract called for. Post-judgment interest is 8% (simple, not compounding) no matter what the contract said.
Brian J
I know that this stuff can actually get pretty complicated and that I, as a lay person, probably can’t understand all of it that well, at least right now. But I haven’t seen a passionate, easy-to-understand defense of the bankruptcy law in a long time, possibly ever. As much as I disagree with it, the logic behind tax cuts (academically speaking), for instance, is pretty straightforward, which makes me think that there’s a legitimate defense of them. Not so much with this change in laws.
soonergrunt
This is the source of things like people mailing back their keys when they go underwater on their mortgages. When a court can modify a mortgage on a second house but not on the primary (for most of us only) house, there’s something wrong with this country. The fact that the so-called liberal party has had power for almost two years and done nothing about the state of affairs is also a problem here.
But it’s things like this are why I have no problem with people who make strategic defaults and such. No one is helping them out. Why should they feel any loyalty to or respect for a group of people whose sole motivation appears to be to fuck them to death?
Sly
@gbear:
Biden voted for it after spewing some BS about how the bill was good because it went after deadbeat dads. Like an Anti-Deadbeat Dad bill couldn’t pass on its own.
I’m generally in favor of taking a little bad with a whole lot of good just for the sake of getting that whole lot of good into law. What Biden did was the opposite, and he is profoundly lucky he hasn’t been widely scrutinized by the left for his role in that bill’s passage.
Even when Obama criticizes the people who think insurance companies should be able to compete across state lines without any Federal regulation, he always brings up Delaware and the credit card industry as an example of why that’s a fucking stupid idea.
superdestroyer
One has to love the irony that progressives the domain of lawyers and those who work in the legal system are complaining that the legal system is complicated that makes lots of money for attorneys.
General Egali Tarian Stuck
Credit cards are the opiate of the masses
stuckinred
@superdestroyer: say what?
Brian J
@Sly:
If nothing else, it’s a pretty strong signal of the industry’s power. Had Biden faced a legitimate opponent in years when this bill was passed? I don’t know, but if I had to guess, I’d say no. And yet, he still voted for the bill, just to please an influential industry in his state…probably because he didn’t want to find out what would happen if he voted against it.
Linda Featheringill
Good morning.
All of you are absolutely right. Life sucks. Reality sucks. Music is still cool, though.
Michael
In my office, I do both collections and some debtor work (long story). Anyway, back when we were wingnuts and hated Clinton, we cheered when he vetoed these abortions – we knew they sucked.
We all knew (including the pure collection guys) that this thing was going to be bad news when it passed. It completely upended the bargain on why the unsecured cc lenders got the big interest (in order to statistically compensate for a higher default rate), and led directy to sucking the wind out of payments on secured mortgage debt.
Tim Cooper
And what’s doubly pathetic is that from what I hear, the banking industry hasn’t really gotten much from the law at all. The theory was, “All these poor people must have secret money somewhere! Let’s make them pay it!” Which ignores the fact that the whole reason they went bankrupt is that the whole reason they are bankrupt is that either
A) They spend every last cent that they have ever gotten and borrowed as much as they possibly could from every source
or more likely,
B) They have lost their job, had a catastrophic medical bill or both and have no money any more.
Either way, you can’t squeeze blood from a turnip.
RedKitten
Ridiculous, really. I don’t really know what the answer is though, regarding bankruptcy.
I used to work for one of the big consumer credit bureaus, and it was not unusual to see multiple bankruptcies on someone’s file. The first bankruptcy stays on file for 7 years. But credit card companies will still issue credit cards even if the bankruptcy is only a few years old. I saw it time and again.
So if you have someone in their early twenties, who’s in major debt and who isn’t planning on needing a mortgage in the next 7 years, then why not declare bankruptcy? They won’t be able to have a credit card for a few years, but that’s really the only way it’ll affect them.
I don’t think that bankruptcies should stay on file forever, of course. People need to be able to have a clean slate after they’ve gotten their shit in order. But by the same token, it might be a little too easy to declare bankruptcy in the first place. Financial penalties, like described above, aren’t great, in my opinion. Maybe the person should be required to attend several sessions of financial counselling, and work up a debt repayment plan to be able to pay back a certain percentage of their debt, before they can file? I don’t know the answers, but fixing this really requires changing the whole system, starting with a major slap upside the head of credit card companies for pushing them onto students and the recently bankrupt. And in my opinion, in-store credit cards should go the way of the Dodo bird.
BethanyAnne
Not showing up at court is a really bad idea. I got sued for a debt. I was too poor to think about a lawyer, so I read some Nolo books at the library, and just showed up on my own. Turned out the guy suing me was hoping I wouldn’t show up, and didn’t have any data about my case ready. I got a dismissal with prejudice, I think it was? Whatever, it meant that I couldn’t be sued for that particular debt again.
Brian J
@RedKitten:
But bankruptcy isn’t a magical process, as you know. It needs to be approved to go through. If the people declaring bankruptcy aren’t worthy in the first place, why are judges approving them?
mai naem
I would like to ask these people if they bothered to vote for in 08 and before. I bet they didn’t bother because it “don’t make no difference.” These people always happen to know about a $300 tax rebate but never about any major political issue.
kay
@Brian J:
Credit card lenders say that they should be permitted to charge astronomical interest rates because the debt they extend is “unsecured” (not tied to a particular tangible asset, like a car or a house).
The theory (was) that they were taking a risk so should be compensated for that risk. The other theory was that they were taking a risk so would follow responsible lending practices, rather than sending a credit card application to your cat.
So why should an unsecured lender be permitted two bites of the apple?
They collect the predatory interest rate, for years, then use state law to garnish wages, thereby securing their debt after the debtor defaults, and they continue to collect the high interest rate.
They get all the reward of risk, but none of the downside. All that does is encourage them to continue to make bad loans, because the state is helping them collect the bad debt.
If they had to write off the bad debt they have out there, they’d stop aggressively selling unmanageable debt loads to people who only look at the monthly payment.
mai naem
@RedKitten: I’ll go along with them attending a workshop/seminar as long as the big bank CEOs have to do the same thing. BTW, I believe the former is part of the law already.
BethanyAnne
@RedKitten: Thoughtful folk of goodwill could work out any number of useful solutions – and probably have. But as our system represents money instead of people, those folk don’t stand a chance.
gbear
@stuckinred:
I think that superdestroyer is saying that he’s confused by the fact that those who know and respect the rule of law (progressives) are troubled that the process is sometimes unnecessarily complicated. He sounds confused by this.
daryljfontaine
@mai naem: Yeah, the problem is the mandatory debt counseling is an industry of its own, stealing fees from the already poor.
Free mandatory debt counseling would of course be socia1ist or some such BS.
D
chopper
@General Egali Tarian Stuck:
meh. most unpopular presidents gain in popularity a bit after they leave, don’t they?
Sly
@Doug:
A friend of mine is on the other side of that relationship (attorney who did a fair amount of bankruptcy work, mostly Chapter 7 and a little Chapter 11/13) and, while concurring with your remarks about a lot people sticking their head in the sand, constantly complained about the means test. He had to tell a lot of people who had medical-related bankruptcies that they didn’t qualify, even though a few years earlier all the bankruptcy judges would have given them the green light.
The bottom line, as I see it, is that the court system is one of the few places where the down-and-out get a fair shake, and there have been numerous laws passed over the last couple of decades, both state and Federal, to get rid of that forum. Mandatory minimums, caps on damages, etc. All things considered, I’d rather put decisions like that in the hands of a judge or jury than some inflexible mandate passed by a legislature.
chopper
@RedKitten:
problem is, credit score now matters in terms of finding decent work. you walk out of college and declare bankruptcy to start fresh, you might become unhirable. then again, in the current atmosphere, that basically puts you in the same pot as everyone else.
John PM
@superdestroyer:
Adoucebagsaywhat?
Actually, the point of this post is that these laws make a lot of money for the creditors and not the lawyers. Collection lawyers get their hourly fee (which is usually not very high) while the creditor gets the 27.5% interest. Also, collection attorneys are subject to the Fair Debt Collections Practices Act, which means that they can be liable for damages if they take actions that are abusive while trying to collect a debt. This is why I hate doing collection work.
The other point of this post is that the laws are not progressive. Last time I checked there were no militant liberals who were advocating that credit card companies be allowed to collect 27.5% post-judgment interest (and no, Joe Biden is not a militant liberal, in case you were wondering).
Finally, I think that compassionate conservatism has been misunderstood. CC means having passion for conservatives, and not that conservatives have any compassion.
wolfetone
@superdestroyer: Not sure I understand what you’re saying there, champ. Care to offer a coherent sentence?
General Egali Tarian Stuck
@chopper: Yes, but usually not this soon after they nearly destroyed our economy and country.
wolfetone
@mai naem: More coherence, less “these people” please.
RedKitten
@Brian J:
I didn’t mean that they’re not worthy. I don’t doubt that they are. I’m just thinking that in the process, maybe something needs to be done to make the debtor more than a passive participant.
RedKitten
@chopper: They check your credit file when you apply for a job? Ye gods. As far as I’m aware, they only do that here if you’re applying for a job to do with finance, mainly to make sure there isn’t any history of fraud.
I could be wrong, though. Fuck, it’s been 10 years since I left that industry, and I don’t doubt that Canadian laws were and are very different from American ones. So don’t mind me talking out of my ass…I just wanted to be part of the discussion.
kay
@RedKitten:
Debtors do have to undergo credit counseling, before they file the petition. Unfortunately, that too has turned into a bit of a scam, because there are now lots and lots of completely unhelpful for-profit “credit counselors”.
The “debt repayment plan” is a Chapter 13. That’s where the court orders the debtor to submit a payment plan.
I object to that because I don’t know why federal courts should be in the business of collecting credit card debt.
I understand a tax lien or child support, something that falls to the the taxpayer if it isn’t paid, but why should unsecured lenders have a federal court dedicated to coaxing their customers into paying the bed debt those lenders threw out there recklessly, all the while collecting massive amounts of interest? They got paid, handsomely, when they collected the 28%. Now they want a federal court to cover the other end of the risk for them?
If a lender is charging an astronomical interest rate, they got paid. I do not think they should be able to avail themselves of any court process to continue to collect high interest on risk they didn’t take.
Sly
@RedKitten:
Some banks and credit firms actualyl red flagged people who recently filed Chapter 7 so that they can offer them more products than they otherwise would.
Get someone who has 5-6 years left before they can file again to sign up for a credit card with a low APR that shoots up to 28% the second they miss the deadline, and you basically force that person into Chapter 13. At which point you can garnish their wages for the initial debt, the legal fees, and 25%+ compound interest over a number of years (average, I think, is 3-5).
You can see by the examples in the article how profitable this can be. That one guy is going to end up paying $14k on an initial $4k debt.
kay
I’ll make a deal with credit card lenders. They can avail themselves of state law that allows wage garnishment and federal law that orders a bankruptcy judge to come up with a payment plan for their customers when they drop their interest rate to reflect the risk they’re taking.
If they’re charging 10%, come on in! File away. If they’re charging 28%, tough shit, bar the courthouse door. They already got paid, and that high interest rate was supposed to reflect the risk they were taking. Default was figured in.
They can’t have it both ways.
elaine
Red Kitten
A lot of employers in the US will check credit reports, assuming poor credit implies someone is a riskier hire, whether the job is in finance or not. Which is really troubling since the 3 companies who create credit reports are private entities and not under any onus to maintain accurate records… And of course the more educated you are, the more likely you are to be better off and better able to respond to nonsense in your credit reports, etc. Or spend hours on the phone fixing errors and gathering information without having to take time off work.
So there’s that — bad credit makes it harder to find employment — on top of this article’s tale of banks as loan sharks.
Mari
@Redkitten – Yes, my last employer (with my permission) ran a credit check on me as one of the conditions of the job (they also checked references, which I think is fair, employment history, ditto, and a drug screening test, which I think is annoying.) The HR representative informed me that they were just checking for bankruptcy or foreclosure. This was for a job as a technical writer at a software company, where I had absolutely no financial or even budgetary responsibilities.
BruceFromOhio
@Linda Featheringill:
Dear Linda, I like your perspective and have now adopted it. Thank you. Regards, BFO.
Sly
@Mari:
There are really only two reasons why employers run credit checks: An easy way to verify employment history, and to see if the applicant is generally “responsible”.
I think the second reason, as indicated by the quotation marks, is mostly bullshit. Bankruptcy doesn’t necessarily mean a person is irresponsible. It likely means that they recently lost their job (which is why their applying for a new one) or, more likely, they or one of their family members had a recent health-related catastrophe. But because they could face a negligence suit if an employee fucks up, they want to cover their bases. Same reason why employers are checking facebook.
liberal
Didn’t the 2005 “reform” also put derivatives in front of everyone else when it comes to bankruptcy? Another bad move.
liberal
@elaine:
What I don’t understand is why they’re not sued for defamation when the information is inaccurate and someone suffers as a result. I’m sure there’s some reason of course.
Ultra Command Master Chief Militia soonergrunt
if you guys think the credit reporting thing is bad, wait until you try to get employment with a security clearance. and of course you get a bunch of credit checks with job applications and this dings your credit.
Will
The credit card bankruptcy act, and how Clinton voted for it and Obama against it–more than any other issue, even the Iraq War–was the main reason I ended up supporting him over her.
kay
@Sly:
I’ve gotten to where I think the whole thing is a scam.
Consumers are told they have to “establish” credit (borrow money) and then they are threatened with the credit report.
It’s one more lever lenders use. They’re telling people they cannot function without a lender. I listen to those catchy jingles and funny commercials and just despair. It pisses me off that they’re directed at young people.
The price of doing business as a grown up in the US is a record of timely payments on high interest debt? That’s a sweet deal.
Wonder who came up with that “financial wisdom”. Lenders? Bingo!
Church Lady
The key word as far as creditor’s being able to garnish wages or seize bank accounts is “default”. If you are served with notice of a legal action against you and don’t bother to respond or go to court on the date given, the creditor wins a default judgement. This is nothing new. I was in law school and working for a law firm in the early 80’s, and it happened all the time. Joe Blow doesn’t pay a creditor, the creditor files for relief in small claims court, Joe Blow ignores the summons and doesn’t bother to show up on the appointed date and time in court and, presto, the Court finds for the creditor. The creditor then goes to the clerk’s office and files a notice to either sieze the money owed from Joe’s bank accounts or, if he doesn’t have enough money in the bank to cover the outstanding debt, garnish Joe’s wages. Joe owed the money and will have to pay, one way or the other. As a side note, Joe usually also now owes the creditor’s legal fee for filing the suit as well.
We have a number of employees that are having their wages garnished for a variety of reasons. From a payroll standpoint, it’s a pain in the ass for Joe’s employer to have to deal with.
BruceFromOhio
@Ultra Command Master Chief Militia soonergrunt:
Nice handle – moving up the foodchain, eh?
A good friend in the IT consulting business had a headhunter contact him about doing some contract DoD work in DC. On the surface, it looked like a good opportunity – interesting work at a DC facility, a decent hourly rate. The further he got into the negotiations, the more evident it became that they couldn’t hire anyone because the number of hoops to jump through made it impossible to satisfy all the security clearance conditions. The headhunter finally admitted that the only reason my friend was contacted was to make it look like the headhunter was actually doing something, because it was unlikely that anyone would actually get hired. My friend did some background research via peer network, and discovered that many of his friendly competitors avoid defense contracts because they are a major PITA, and frequently not worth the time and trouble to get in the door.
kay
@Church Lady:
“By default, Beneficial won a judgment of $4,750, plus $900 in lawyers’ fees, with the debt accruing interest at 27.55 percent until paid in full. The bank started garnishing his wages in March 2003.
Over the next six years, the bank deducted more than $10,000 from Mr. Jones’s paychecks, but he made little headway on his debt. According to a court order secured by Beneficial’s lawyers last spring, he still owed the company $3,965, a sum nearly equal to the original loan amount.
Mr. Jones, who did not graduate from high school, was baffled. “Where did all this money go that I paid them?” he said.”
You know what Church Lady? I have zero interest in my municipal court collecting high interest for irresponsible lenders.
I have a novel idea. If they’re lending at 28% they figured default into that high interest rate. If their customer defaults due to their poor lending practices I think they should go out of business. We were told they needed state law that limited interest rates repealed because they were taking a risk. Weirdly, my municipal court is now securitizing their bad debt. If they want the state to cover their ass due to their poor lending decisions, they can reduce their interest rate. My muni court judge is not in the business of collecting high interest so finance and lending can convert profits to obscene bonuses.
Ultra Command Master Chief Militia soonergrunt
well, for the IT guy who already has a clearance, it can be a sweet deal. it can worth 10% to20% more pay. if you don’t already have one it can cost your company up to 20k to do all the work and up to a two year wait for final adjudication, during which time the company is getting reduced pay from gov’t due to noncompliance.
Graeme
Just a reminder: Obama voted against that horrible Bankruptcy bill.
kay
@Graeme:
Of course he did. Lenders wrote it. God forbid the captains of finance should go out of business when they make millions of bad loans. That would be putting their bonuses at risk.
They need a federal or municipal court to step in and bail their asses out, and collect interest, because this country lacks predatory lenders, and we have to protect them.
They made an unsecured loan, and they collected interest commensurate with an unsecured loan. Now they need your friendly municipal court judge to collect the 30% on the “risk” they took.
Because they’re risk takers.
Bruce (formerly Steve S.)
Joe Biden was a leading proponent of the 2005 bill, which easily passed the House and Senate.
kay
The timing of the Credit Card Lender Protection Act was interesting, too.
The finance geniuses realized they had a shit-load of bad debt out there, so the unsecured lenders rushed to the federal government for protection.
I’d like to see an analysis on how this lender-written monstrosity impacted the broader economic meltdown.
I’d like to see how many consumers could not discharge unsecured debt as a result of this give-away so couldn’t make their mortgage.
John PM
@liberal: #47
The credit reporting agencies can be sued under the Fair Credit Reporting Act if a consumer notified them about inaccuracies on a credit report and they do not take action to remove the inaccuracy. A successful suit includes an award of attorneys fees, so there are lawyers and firms that specialize in just this sort of work.
Any consumer who is being squeezed by a creditor should go the the Federal Trade Commission website and may also want to contact a consumer protection attorney to see if the creditor has violated any federal and/or state laws in attempting to collect the debt. Sometimes a creditor will back off attempting to collect a debt when contacted by an attorney for a consumer.
El Cruzado
@BruceFromOhio:
Living in the NOVA area I know a few people who work either for government contractors or on their periphery. Another issue they note is that if you end up doing secret work for a while you’re pretty much unemployable anywhere else. You then go to a job interview and the answer to “what were you doing all these years” can’t go beyond “stuff”.
BruceFromOhio
@El Cruzado: You then go to a job interview and the answer to “what were you doing all these years” can’t go beyond “stuff”.
We talked about that at length – how do you leverage what might be an excellent technical or career experience when you have to kill the people you tell about it? Not a good way to end an interview.
LJS
The story of my last 3 years. Too broke to file bankruptcy.
TenguPhule
Debt nothing, you could have basically owned that guy’s soul for wasting the court’s time.