Bankruptcy

Professor Lawless Goes to Washington

Continuing the recap of the “Flat Earth Society” meeting (tm NACBA Prez Henry Summer), we turn to Professor Bob Lawless’s first-ever appearance on the hill. I can only imagine this as a “Mr. Smith” moment of the highest order, as the Republican-invited creditors’ chorus sang in perfect harmony (black is white, up is down, don’t change a word), and then Professor Lawless takes the floor to “crash the party” as he puts it in this Credit Slips post.

In the Professor’s own words:

At one point in the hearing, I looked up at the bright lights and the television camera and wondered, “What am I doing here?” That hearing room was not my place. I am a scholar who gathers data, data from government records, from court files, from talking to people who file for bankruptcy. It dawned on me that was precisely why I was there and why Judge Newsome was there and why Hank Hildebrand was there. We were there in an attempt to inject some reality into the hearing, reality that is not penetrating inside the Beltway, and it is not surprising that message would come from three people from the great hinterlands.

The reality is that the middle class is in the same financial condition as they were when the bankruptcy law was passed. For example, credit card delinquency rates are 12% higher than they were just before the law went into effect. Home mortgage debt is almost 75% higher today than it was five years ago, and over 300,000 properties entered some stage of foreclosure in the third quarter of 2006, an increase of 43% compared to the same time one year ago. News stories on Wednesday announced that delinquency rates among subprime borrowers are increasing rapidly.

Yesterday morning, I was on CNBC with the media person from the Financial Services Roundtable. She suggested that the bankruptcy bill gave consumers “better choices, earlier choices, more choices.” It was typical of the day, with persons asserting up was down. How can one claim that a bill limiting access to the bankruptcy courts gave a consumer more choices? Here is news for the apologists for the consumer credit industry–more consumer credit means more consumer bankruptcies. . . . By making it more difficult to file bankruptcy, the 2005 law leaves people with the middle class with the same crushing debt load it had before the legislation but now with nowhere to turn for relief. They will be paying interest and fees for years . . .

© 2006 SC Bankruptcy & Consumer Law Blog.