At Arm's Length - Financial Commentary about Money, Investing, and How It Affects the Average Investor

At Arm's Length: 03.02.05

Chapter and Verse

The assault on the middle class began again in earnest on Monday as a bill, which has languished for years in the House and Senate, made its way to the top of the priority list. Once vetoed by Bill Clinton, the measure, consider by many an academic exercise would make it more difficult to declare bankruptcy. Current laws allow a judge to determine whether all debts should be wiped clean in Chapter 7 or be restructured using Chapter 13. The later allows for some debt repayment, usually structured over a three year period.

The bill, sponsored by Senator Charles E. Grassley, an Iowa Republican, has been around in some shape or form since 1998.

The current proposed legislation still has loopholes that allow applicable state bankruptcy laws, such as those that permit asset trusts, a device permitted in five states, to apply while raising the limits for the average bankruptcy applicant. Some active duty military personnel would also be excluded as well.

Democrats are attempting to soften the language of the bill which would affect millions of low and middle income individuals, many of whom receive offers of easy credit even as those same banks and financial institutions seek to make it more difficult to discharge their bad credit habits. A means test would be applied to determine whether a claim has merit and the length of the repayment period. The bill would extend the repayment period to five.

Taking the determination away from the court system where financial institutions, described by Senator Edward Kennedy, a Democrat from Massachusetts as one of "the most profitable" industries in America, essentially demonstrates the ability of lobbyists to purchase favors from the current Congress. Financial institutions were among the top contributors to the President's bid for election and re-election. The measure is described by Labor and consumer groups as a move to turn the lawmakers in a collection agency.

As Democrats attempt to water the bill down allowing for exemptions for medical hardships, a growing problem as health care costs rise for poor and middle class families, in particular, women, the majority led by Senator Bill Frist, Republican from Tennessee is moving forward with the White House's blessing.

The bill does little in the way of seeking stronger corporate judgments against companies who declare bankruptcy in order to discharge obligations to pensions and creditors.

Those seeking changes in the bill cite the growing amount of people filing for protection, a number that has grown from one in 336 households 25 years ago to one in 73 in 2003.

Chapter 7 allows for a fresh start. Congress wants spendthrifts who abuse the system to be held accountable. The Democrats want some protection for the elderly, some of whom lose their homes in an attempt to satisfy creditors. A Homestead provision introduced by Senator Kennedy would allow a $150,000 exemption, allowing many seniors to keep their homes, effectively excluding them from consideration as assets when medical hardships are used as the reason for the filing.

At the center of the debate is the rigid application of the proposed law's mean test. The law would consider the applicants last six months income, even if that income was the result of unemployment benefits.

The previous week's articles.

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