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Vol.
I No. 8 Reform on Whose Behalf? By Charles Douglas EUREKA - With a rush of over half a million bankruptcy filings before the end of 2005 nationwide, local attorneys and credit professionals have braced themselves for a new year with new rules making it more difficult to file bankruptcy and more risky to run up large credit card debts. “The entire system is inundated and overwhelmed at them movement,” Executive Director Winchell Dillenbeck of Consumer Credit Counseling Service (CCCS) said on Thursday. “It’s not the ideal time for a teachable moment, we hope people will be exposed to education and want more, we’re not going to change the culture or any one individual when they’re forced to come here.” Under the new federal bankruptcy law, all those seeking bankruptcy will be required to undergo, within six months, counseling from an approved service such as CCCS. Many filers, if their income exceeds the median of their state, will be forced to choose Chapter 13 bankruptcies to mandate partial repayment of their debts, instead of the more-often utilized Chapter 7 system of liquidating assets to discard debts. “The whole bankruptcy procedure is going to be way longer, way more cumbersome and is going to require way more attorney’s fees,” Green Party Chair Greg Allen said on Wednesday. “In terms of basic principle, bankruptcy as we knew it in the United States is dead. The new bankruptcy system doesn’t complicate discharge as much as it does repayment.” Also under the new law, up to 15% of income can be given to charity, which is seen by some as a loophole allowing people who may be just over the threshold of having to file Chapter 13 to drop low enough to file Chapter 7. On prioritization list for debts, child support and alimony payments owed would move from seventh to first place. Dillenbeck said he supported the law for, among many reasons, because the average income in Humboldt County fell well below the median for the state, which is driven up by high-income urban centers such as San Francisco and San Diego, thus making the majority of future filings in Humboldt Chapter 7. “It’s a start in the right direction, simply because…financial literacy is at a very low point in this country and it’s embarrassing that we’re not teaching our high school students how to manage money,” Dillenbeck said.
“The cumulative effect of all the small changes is to make it much more dangerous for lower-income people,” he said on Thursday. “Someone in an emergency with a foreclosure, they might lose their house if they don’t file it correctly.” Dillenbeck said it was a fairer system to expect people with homes or other significant aspects to not be able to completely erase their debt without some repayment, and counseling requirements, while firm, were providing a needed service. “The credit card industry has been under the microscope by Congress, there are some really bad players in our industry,” he said. “This bill is trying to make sure agencies are providing the counseling, they’re coordinating with the IRS, which is auditing some of the larger non-profits to make sure they are non-profits…we have heard some of the not-so-good players may lose their non-profit status.” While Dillenbeck predicted a paltry 5% increase in Chapter 13 filings, Allen, an attorney, expected a more substantial impact. “I think that the changes in the bankruptcy law have been very ill-advised and I think it’s going to cause a break in the bankruptcy system as we know it,” he said. “The cases you get most concerned about are no-assets bankruptcies.” The politics of taxation To Democratic Party Chair Patrick Riggs the bankruptcy bill was an attack by Republicans on people in order to enrich corporations. “Particularly vulnerable would be middle class Americans who are already being squeezed tremendously in so many ways…in many families two people, both parents have to work to make ends meet and it’s a constant struggle for them,” he said on Friday. “While its been going on for quite some time in America, it has accelerated under the Bush administration, the rich get richer and the poor get poorer.” Noted Republican and Chair of the Humboldt Taxpayers League Leo Sears said he didn’t think it would have any affect on tax collections, although he declined comment regarding its impacts on certain populations. “It’s not surprising in so far as it is in keeping with what people have been predicting,” he said. Hjerpe said the bill was clearly drawn up, developed and paid for by credit card companies and thus was not in the best interest of the consumer. “I think a powerful lobby has a great influence on Congress…it’s a matter of public knowledge,” he said. “I don’t think it inhibits abuse as intended. I think it does inhibit low-income people getting through the process.” Allen said he thought many members of Congress who voted in favor of the bill, which passed the House of Representatives 302-126, were underinformed on its implications. He questioned in particular the judgment of Congressman Mike Thompson, a Democrat from St. Helena, who voted in favor of the bill. “Since Mr. Thompson has been receiving large contributions from the lending industry, it would be a fair question to ask Mr. Thompson if this did cloud his judgment,” Allen said. “I think it would be very hard for people who aren’t attorneys or who haven’t done bankruptcies to understand the implications.” While defending Thompson’s integrity, Democratic Central Committee member Patrick Higgins made similar comments about the role of campaign cash on Capitol Hill. “It’s pretty clear that the credit card industry championed this bill…it ends up that campaign contributors have an inordinate influence and we can expect more of the same,” he said. “I feel sorry for the people who were affected by this…we have a responsive government, but the problem is its responsive to the rich.” Higgins said hardball was the name of the game in Washington, D.C. and Thompson was doing his best to accomplish his ideals while getting the work of the Congress accomplished. “Mr. Thompson is occasionally not going to vote the way people prefer, because it’s a compromise,” Higgins said. Credit card repayment time limited Although unrelated with federal legislation, the new year also witnessed a change in policy by major credit card companies. Now the minimum payment required to carry forward credit balances will be high enough to allow the payback of all debt on the card in five years. While Dillenbeck was concerned with high default rates on credit card debt, he doubted if there would be any lasting affect on the propensity of Americans to go into the red. “The unfortunate consequence of everything is that while this is a step in the right direction, unless Congress decides to look at credit granting policies overall, we’re not going to make any huge dent in this culture,” he said. Green Party Treasurer Jesse Goplen believes the increase in minimum payment was put off for three years to give the credit card companies time to procure undeserved protection from bankruptcies at the expense of working families. “The irresponsible party is not the individual who uses their credit card, it is the company which does everything in its power to supply consumers the opportunity to become overburdened with debt, and once overburdened, to jack up interest rates and prevent the consumer from being able to pay the card off,” he said on Friday. “Companies don't want to pay for their irresponsible decision to lend credit to everyone in excess for the express purpose of screwing them so severely that they will never be able to escape the situation, so they have instead successfully curtailed one of our basic rights, the right to declare bankruptcy.” Goplen said this increase in the minimum wouldn’t help consumers who were unable to make the higher payment. “There are any number of other measures which could have been taken which would provide consumers with far greater assistance in paying off their debts, for example limiting credit card interest rates, even in default, to prime plus six percent or some other more reasonable limit. Nonetheless, raising the minimum payment is not in the interest of credit card companies, who would rather have you mired in debt - which is why this change took 3 years to happen, in my opinion, to give the credit card companies time to pull off their dirty bankruptcy reform trick.” Hjerpe similarly felt the benefit of the minimum payment increase was illusory when compared to the negative effects. “In Humboldt County a lot of people carry balances…this will penetrate a lot more income strata of families and it will cripple those with higher payments,” he said. According to a Frontline report in 2004, households in the United States receive over five billion credit card offers every year, with the industry exceeding $5 billion in marketing costs, $4 billion of that for direct mail. Open Secrets (opensecrets.org) cites more than $8.2 million in individual and political action committee contributions from finance and credit card companies during the 2004 election cycle. |
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Copyright © 2005-06, Humboldt Sentinel. All rights reserved. |
Tax
attorney Thomas Hjerpe warned, however that lower income people would
face the greatest burden at the same time as some of his higher income
clients would now get a better outcome, as fees have increased 40% and
attorneys now face increased personal liability in dealing with the Internal
Revenue Service (IRS).