Making Bankruptcy a Life Sentence

The profit-hungry banks and credit card companies wrote the legislation themselves. And now, their friends in Washington have delivered.

So-called bankruptcy “reform” legislation passed its final hurdle last week, winning approval in the Senate by a wide margin that included Republicans and Democrats. George W. Bush will soon sign it into law.

The law makes it much more difficult–and expensive–for people with no way out to escape heavy debts and start over. Under the bill, many families would be forbidden from filing for Chapter 7 bankruptcy, which basically erases a number of past debts–and would have to seek protection under Chapter 13, which requires repayments, no matter how overwhelming their debts.

The bill’s passage caused a rush of people to contact bankruptcy lawyers, according to news reports. “The news panicked me,” Milton Haynes, a retired machinist from Chatham, Ill., told the New York Times. “I keep trying to pay my bills, but I keep getting deeper into debt.”

Haynes’ story will now be repeated in many more working families. “Many debtors,” wrote New York Times columnist Paul Krugman, will “find themselves on an endless treadmill of payments.”

The legislation’s supporters claimed the law would stop people from declaring bankruptcy “to avoid personal responsibility,” said Sen. Orrin Hatch (R-Utah). But that’s not why most people file for bankruptcy.

One-third of families who file for bankruptcy are already below the federal government’s poverty line. A recent Harvard University study found that more than half of 1,771 people who filed for personal bankruptcy in five federal courts said the primary reason for their debts was overwhelming medical bills–a consequence of the increasing scarcity of quality health insurance, or any insurance at all, in too many cases.

Job loss and divorce–not “personal irresponsibility”–are the other main factors in bankruptcies, according to studies. Plus, according to consumer groups, credit card companies–which together earned $30 billion in profits last year–bear responsibility themselves for the increasing rate of bankruptcies, because they issue credit cards at high interest rates and with large hidden fees for late payments to vulnerable consumers.

The bias against workers and the poor was most obvious in what the legislation didn’t “reform”–bankruptcy protection for corporations and the super-rich.

Perversely, it may be easier under the new law for a rich individual with heavy debts on luxury items to qualify for the more compassionate Chapter 7 protection than a middle-income family with a more moderate debt burden, say experts.

The new law doesn’t touch corrupt companies like Enron and WorldCom, which used pro-business bankruptcy courts to help them swindle employees out of their retirement savings and other benefits.

Then there’s the “millionaire’s loophole.” The super-rich will still be able to shield their assets from creditors during bankruptcy by creating special trusts.

In the Senate, lawmakers defeated amendments that would have closed the millionaire’s loophole; shielded victims of identity theft from the effects of the law; prevented corporations from making huge payouts to executives before filing for bankruptcy; and put a national limit on the homestead exemption, which lets executives buy expensive homes to shelter their assets.

A proposal to raise the minimum wage from $5.15 an hour to $7.25 over two years also went down to defeat. Sen. Ted Kennedy (D-Mass.), who sponsored the amendment, called the vote “the height of hypocrisy,” pointing out that senators increased their own annual salaries by nearly $30,000 over the past five years. That raise alone is almost three times more than a minimum-wage worker makes in a year of full-time work.

Kennedy’s fellow Democrats were prominent among the “hypocrites.” The final vote on the bankruptcy law was a lopsided 74 to 25. Almost as many Democrats voted for the legislation as voted “no.”

Liberal Sen. Tom Harkin (D-Iowa) despaired to reporters that Democrats were “making a terrible mistake by thinking that we can have it both ways. We have to remember who our base is.” But other Democrats–including Senate Minority Leader Harry Reid of Nevada, Joe Biden of Delaware and Robert Byrd of West Virginia–were anxious to show their loyalty to the party’s real “base”: Corporate America.

Companies lobbying for the bill–including Visa, MasterCard, the American Bankers Association, MBNA America, Capital One and Citicorp–spent more than $40 million in political donations since 1989, and many millions more on lobbying efforts, according to the Center for Responsive Politics, a campaign finance watchdog group. “All the money is on one side, and all the hurt is on the other,” Elizabeth Warren, a bankruptcy law expert at Harvard Law School, told the New York Times.

Meanwhile, Republicans celebrated another easy victory on legislation that has been on their wish list since the Clinton administration.

“I came to the U.S. Senate to get things done–and so far we are delivering,” said newly elected Sen. John Thune (R-S.D.). He means getting things done in the assault on working people–and delivering for corporations and the rich.

ALAN MAASS is the editor of Socialist Worker. He can be reached at:






ALAN MAASS is the editor of the Socialist Worker and author of The Case for Socialism. He can be reached at: