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Wednesday, March 02, 2005

Bankruptcy Reform


The Senate bill would tighten access to the most generous and popular form of bankruptcy, Chapter 7. People filing for Chapter 7 bankruptcy can wipe out their debts and get a 'fresh start.' The bill would impose a means test: Debtors who earn less than the median income in their state -- about 80 percent of those who file for bankruptcy -- still would be entitled to file under Chapter 7. But those who earn more than that -- and who have the ability to repay at least $6,000 over five years -- would have to file under Chapter 13, which requires a repayment plan. Experts estimate that means testing would affect no more than 10 percent of consumer bankruptcy filers. In theory a means test is reasonable, but the test in this legislation is unnecessarily rigid. It considers the previous six months of earnings, even if the bankruptcy filer is now out of work. Moreover, once filers show that their income is below the median, there's no reason to require them to provide additional information. Sen. Edward M. Kennedy (D-Mass.) has outlined amendments to address these issues, as well as a sensible proposal that would provide a $150,000 homestead exemption to help the elderly and those driven to bankruptcy by medical expenses keep their homes. If the Senate tightens rules for those filing for bankruptcy, it also should crack down on the corporate practices that contribute to the problem. At the very least, as Sen. Daniel K. Akaka (D-Hawaii) has proposed, credit card issuers, who now send out 5 billion solicitations a year and whose profits have soared, ought to be required to disclose to borrowers the true cost of making only the minimum payment on their balances.
This makes pretty good sense to me, both the basic idea and the two ammendments, especially the Credit Card disclosure one. While I am laizez faire in many of my economic beliefs, I think that full and fair disclosure of costs and effects of what you are selling is something that the government can, and should, enforce.


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