Warehouse G

Avoiding The Poor House

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 Chapter 7.

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.