March 19, 5PM UPDATE: Welcome Politology readers (or is that “Politologists”?). The Talking Points you are looking for start below.
Two previous posts provide the details that support these talking points:
Deconstructing Todd Zywicki’s “Bankrupt Criticisms”
(Part 1)
Deconstructing Todd Zywicki’s “Bankrupt Criticisms”
(Part 2)
Here are those talking points.
1. Proponents are using guilt by association to encourage those on the grass-roots right who would ordinarily oppose this legislation to “trust them,” while at the same time pointing to bought-off liberal senators who supported it to convince the left that “it’s not all that bad.”
“Conservatives–if Paul Krugman and Ted Kennedy are against it, it must be a good thing.”
“Liberals–If Harry Reid and Joe Biden supported it, it must not be that bad.”
Baloney. Let’s debate the bill, both what’s in it and what’s not in it, on its merits.
2. The bill does not do enough to rein in the big-dollar fraudulent filers and dodgers.
It does not address the asset-protection trust dodges used by the very well-off and it doesn’t address the vast homestead exemption inequities between states.
3. The bill does nothing to prevent continuation of the lending industry abuses that have driven many consumers who have fallen behind on their bills, and who in an ethical lending environment might very likely have regained their footing, from having to file.
Lending industry penalty-fee and penalty-rate abuses keep consumers who get into financial trouble from every digging out, and make bankruptcy a nearly self-fulfilling prophecy.
4. The claim that 10% of bankruptcies have “some fraud” is not supported by the number or dollar amounts of successful investigations and prosecutions carried out by FBI and IRS units dedicated solely to the task.
How can there be so much fraud and abuse when at most 100 cases per year are filed, and when some of those involve amounts as low as $10,000 to $20,000?
5. The legislation lengthens the minimum required period between bankruptcy filings from 6 to 8 years, but does nothing to prevent potential lender abuse of post-bankrupt individuals and families.
If the minimum period is to be lengthened, the lending industry must be barred from direct marketing to post-bankrupts.
6. Instead of controlling homestead exemption abuse with the awkward residency requirement tool, the homestead exemption needs to be standardized nationally.
There should be a homestead exemption that is uniform nationwide after adjustment for regional house-price differences. The exemption should be set high enough to enable the large majority of filers to keep their homes.
7. The arbitrary means-testing measurements (“the standardized slate of expensesâ€) under the new law will unreasonably force many filers who should go into Chapter 7 into Chapter 13.
The discretionary system used by trustees today works reasonably well. The new regime would impose a nearly one-size-fits all solution despite the wide variance in family circumstances and expenses.
8. Expectations that the law will move over 100,000 filers per year into Chapter 13 who would have gone into Chapter 7 under the current law presuppose that Chapter 13 bankruptcies today usually result in a successful discharge of a portion of the debt balances owed at the time of filing. This is false.
The fact is that the majority of Chapter 13 filers who put together a plan of partial repayment do not carry through with the plan, meaning that they once again become “fair game” for creditors. Since Chapter 13 filers in today’s system usually enter it with the intention of completing the repayment plan, the fact that they fail means that many of them should really have filed Chapter 7. Many actually end up in Chapter 7 after two or three unsuccessful attempts at Chapter 13.
9. Adding even more Chapter 13 filings into a system that doesn’t work for the majority of people who currently enter it will only make things worse.
The new chapter 13s will largely be people with incomes barely above the state-specific median income threshold, and are the very people with the lowest likelihood of being able to carry out a Chapter 13 repayment plan successfully.
10. The bill’s requirements for prefiling credit counselor “briefing” and financial counseling between filing and discharge come too late in the consumer downward debt spiral for those who need it, presupposes that there are enough reputable and ethical counselors to meet the need (which isn’t the case), allows ineffective and cut-rate education to take place, and does nothing to ensure that lenders make sufficient “fair share” payments to counseling agencies.
Credit counselors should be engaged when individuals and families are headed for trouble, not when they’re already in so deep that filing for bankruptcy is often the only reasonable alternative. The requirements for financial training after filing and before discharge are a waste of time for large percentage of people whose bankruptcies were not due to financial mismanagement.
11. Finally, the comprehensive changes to the bankruptcy system envisioned, even if they identify the level of fraud and abuse supporters claim exist, will only collect an extra $10 per year per citizen, before considering the extra implementation and ongoing costs imposed on the government by this legislation.
Proponents expect to weed out 100,000 to 150,000 abusive filings, and realize $3 billion. If fraud is only 10% of that (which appears likely, given that less than 100 successful prosecutions for bankruptcy fraud have taken place annually), the extra money realized ($300 million) will be almost offset by extra costs to the taxpayer imposed by the bill.
