A Fighting Chance

family breakups had laid these families low: For discussion of the causes of bankruptcy, see note, “or a family breakup…”

tried to repay long past any reasonable chance of doing so: Research by Ronald Mann and Katherine Porter using Consumer Bankruptcy Project data found that most households who file for bankruptcy seriously struggle for two years before filing. In one of their interviews with bankruptcy attorneys regarding how long it takes their clients to file, one Georgia attorney reported that “it’s very, very common for people to say[,] ‘I should have done this years ago’ or ‘I should have done this about two years ago.’ So I don’t think it’s a snap decision to contact an attorney.” Ronald Mann and Katherine Porter, “Saving Up for Bankruptcy,” University of Iowa Legal Studies Research Paper No. 10–02 (2010). Similarly, in The Two-Income Trap we found that the average person who filed for bankruptcy reports spending more than a year struggling with debts before filing. See here.

and I fought her at every turn: During the Commission’s work, a news report broke that indicated Judge Jones had led a group of Commissioners in a secret meeting with bank industry representatives—in violation of federal open-meeting laws. Diana B. Henriques, “Bankruptcy Commission Faces an Inquiry,” New York Times, August 9, 1997.

shopped it around to some friendly members of Congress: H.R. 2500 (105th), the “Responsible Borrower Protection Bankruptcy Act” was introduced on September 18, 1997, and had 147 cosponsors. “Sponsors of the bill acknowledge that lawyers and lobbyists for the banks and credit card companies were involved in drafting it. The bill gives those industries most of what they have wanted since they began lobbying in earnest in the late 1990s, when the number of personal bankruptcies rose to record levels.” Philip Shenon, “Hard Lobbying on Debtor Bill Pays Dividend,” New York Times, March 13, 2001. “The fact that McCollum and Boucher didn’t wait until the report was in to introduce HR 2500 says a lot about the overall attitude toward the NBRC’s efforts, analysts say.” According to a Visa executive, “Unfortunately the commission’s proposal was [dead on arrival].” Judge Jones was quoted saying to the press: “The lending industry became disaffected with the commission’s work pretty early on and decided, strategically, not to show us their hand.” “Proposed Bankruptcy Bill Gets Overwhelming Support,” Credit Risk Management Report, December 1, 1997.

bill would make life worse for families in trouble: The industry-backed bankruptcy bill increased difficulty for families in financial distress in a number of ways. It created means testing, which erected legal barriers to people in financial trouble trying to discharge their debts altogether through Chapter 7. Instead, debtors in trouble were turned out of the system altogether or pushed into the much more arduous Chapter 13, in which a family was put on a very strict budget and forced to make payments on their debts for three to five years. Note that our research had shown that because people sometimes lose jobs or miss work, or are faced with unexpected expenses like medical bills or car trouble, approximately two-thirds of families who attempt Chapter 13 are unable to follow through with the strict budget and end up getting kicked out of the system and lose all bankruptcy protections. See National Bankruptcy Review Commission, “Chapter 13 Repayment Plans,” (1997). The method used for means testing created particular hardship on families who were going through divorce. In addition, repaying back child support payments would no longer take precedence over other kinds of debt repayment. As a result, a single parent who is due back child support from an ex-spouse would now be required to compete with professional collection agents when trying to collect monies due. Also, homeowners who had fallen behind on their mortgages would no longer be allowed to focus their resources on catching up on past-due mortgage payments until they had also paid off other debts, which increased the chances of foreclosure. Lastly, the provisions significantly added to the costs and complexity of filing for bankruptcy. See note, “charged more,” for more discussion of attorney costs to file.