Beating Back Big Business Blocks To Bankruptcy
By James Donahue
President Barack Obama appears to already
be moving toward keeping yet another important campaign promise . . . knocking back the 2005 revised bankruptcy law that made
it harder for poor and middle-class families to get out of financial crisis.
As the American economy plunges deeper and
deeper into chaos, and more and more people are losing their jobs and their ability to pay off accumulated debts for an old
and dying standard of living, it is more important than ever before that bankruptcy laws be designed to help people instead
of punish them.
Under the original bankruptcy law people
could escape the terrible burden of overwhelming debt from say an accumulation of high credit card bills, car payments, house
payments and unexpected medical expenses by filing for bankruptcy. This was done by hiring a bankruptcy lawyer and filing
for protection through a federal bankruptcy court. For most individuals the relief was found in a type of bankruptcy called
The bankruptcy procedure involved a showing
of personal income records and financial debts, and an elimination of all but certain assets. People usually did not escape
mortgage payments, but that was when house payments could easily be fit within a working person’s monthly income.
When the Bush Administration and the Republican
controlled lawmakers got through revising the old bankruptcy laws in 2005, there were some harsh changes for the individual
filers. This included credit counseling in a government-approved program and a “means test” to determine if monthly
income is less than the median income in the state. If the monthly income is too high, you must file under Chapter 13, which
requires a plan for paying off the debt but in smaller monthly amounts. Many assets like automobiles and items of value must
be sold by an interim trustee and the money used to help pay off creditors.
Obama’s new bankruptcy plan would eliminate
all of the hoops applicants now are forced to jump, including the elimination of what he calls a “harsh means test”
and “token counseling” and erasing unnecessary paperwork, thus simplifying the process. He also wants to enact
a homestead exemption that would help people keep a greater share of the value of their home.
New legislation already making its way through
Congress would change the bankruptcy law to allow judges to modify mortgages of distressed homeowners, and even reduce the
principal of the loan to the property’s current market value.
This plan has already gained support from
one House committee, but is drawing tough objections from Republicans and lending institutions, for obvious reasons. It might
be more acceptable if Treasury Secretary Timothy F. Geithner had the authority to use some of that $3.5 billion in bank bailout
money to pay the difference.
Whatever happens, Obama appears to be getting
ready to fix a lot of the very bad and carefully designed legislation rammed through during the Bush years that put the rich
guys in the driver’s seat and the squeeze on everybody else.
The changes were methodical and often done
with little fanfare right under the noses of our sleeping Washington press corps. The only reporter in the bunch who probably
noticed and wanted to sound the alarm was Helen Thomas, and Bush refused to allow her to ask a question.
They all knew what they were doing. But they
never dreamed a guy like Barack Obama would emerge from the shadows as he did and turn it all back around again.