A question about bankruptcy law

[Meadmaker]

The coverage I have seen in the media about the new bankruptcy law in the US doesn't make any sense. I wish I had kept yesterday's Detroit Free Press which had an article about it, because it was a great illustration of the problem. Since I didn't keep it, I'll have to quote from memory:

"The new bankruptcy law requires people with an income above a certain level to enter into an arrangement to pay their bills. Opponents of the law said it would hurt low income people and the working poor the most."

So, which is it? If it only affects people with incomes above "a certain level", how can it affect "low income people", the most.

That particular article didn't say what the "certain level" was, but elsewhere, I read an article that said it only affect people with "above average incomes".

So, from what I understand, this new law requires people with above average incomes to actually pay their debts. I'm having a hard time seeing a down side to that.

What am I missing?


It seems almost as if this is an example of the pathetic state of journalism today, in which the notion of objective journalism has been replaced with an idea that you need to report both sides of the story equally. True objectivity would require that you report the facts, and then see how each side compares with the facts. If facts can't be determined, then it might be ok to report both sides equally, but in the case of the bankruptcy law, it seems that facts could pretty easily be determined. Either it affects low income people, or it doesn't.

 

[The Central Scrutinizer]

It's the usual crowd of whiners who don't want anyone to be responsible for any of their actions. Except for those evil rich people, who should have to be soaked extra hard.

 

[ceo_esq]

The way it works under the new law, as I recall, is that debtors with incomes above the median income for their state can no longer benefit from Chapter 7 bankruptcy (in which most debts are dissolved). Instead, they must enter into a court-supervised workout plan.

I think some objections arise from the observation that some families who technically would exceed the income cut-off are frankly not very well-off (for example, a family with modest income but with disproportionately large medical or other expenses, or a previously well-to-do family that has encountered a financial catastrophe). Some families have an income that might just surpass the state median, but have no savings or are otherwise in a financially precarious position, so that their income level is perhaps not a fully reliable indicator of how poor they actually are.

As I understand it, the greatest concern surrounds these people. Under the old law, a bankruptcy judge could use fairly broad discretion to determine whether Chapter 7 protection was appropriate for a given debtor, and he could consider many factors in developing a more comprehensive picture of a family's actual level of financial distress. Under the new law, there's a pretty inflexible bright-line determination based essentially on income. On the upside, undeserving debtors will have a harder time avoiding repayment arrangements. On the potential downside, in some close cases, modest-income families who probably should be afforded Chapter 7 protection won't make the cut, and the bankruptcy court's hands will be tied.

NB: Bankruptcy isn't my field of practice, however.

 

[Vagabond]

I am sure there are some people who didn't do anything to deserve it will be hurt but I think those will be in the vast minority. There is already some means testing in place already. You can't file chapter 7 if you have more than 15k in equity in your house. My brother just filed bankruptcy to beat the new law. It was very common for him at one time to get a credit card, buy a car or once he took a trip to disney world and stayed in the hotel there for a week on the new card and then didn't make a single payment on the card. This is credit card fraud and people shouldn't be allowed to do that.

It is very easy to manipulate it so it looks like you are broke for whatever legit reason when you have been doing crap like that too. If you take out cash advances on your card you could be using them for food and medical expenses or you could be buying drugs and gambling with the money. If you have a car with a 300 dollar a month payment and upkeep yet you don't have any medical insurance, I am not going to feel real sorry for you either.

 

[kimiko]

I am sure there are some people who didn't do anything to deserve it will be hurt but I think those will be in the vast minority.

I'm not so sure. There is a study linking about half of bankruptcies to medical problems. http://www.azcentral.com/health/news/articles/0202medicalbankrupt02.html

 

[Vagabond]

I'm not so sure. There is a study linking about half of bankruptcies to medical problems. http://www.azcentral.com/health/news/articles/0202medicalbankrupt02.html

I don't have any doubt that is a true statement but it isn't the whole story. I have little doubt the vast majority of people with no medical insurance drink, smoke, gamble, do drugs, buy new cars with money they could have bought medical insurance with. They choose to gamble and not carry medical insurance then whine when they lose the gamble. If you spend your money wisely you won't be pushed over the brink by some bad luck. If however you are already at the brink already because you spend every dime you make, and borrow money for luxury items, it doesn't take much to push you over.

 

[kimiko]

I have little doubt the vast majority of people with no medical insurance drink, smoke, gamble, do drugs, buy new cars with money they could have bought medical insurance with.

Are there statistics to support that view?

 

[Vagabond]

Are there statistics to support that view?

No, because it's the kind of thing people don't admit too. Also these sorts of people are just the kind that don't take any responsibility for their own actions in the first place. Otherwise they wouldn't act as they do. The fact something is difficult to quantify statistically doesn't mean it's false.

 

[crimresearch]

I don't have any doubt that is a true statement but it isn't the whole story. I have little doubt the vast majority of people with no medical insurance drink, smoke, gamble, do drugs, buy new cars with money they could have bought medical insurance with. They choose to gamble and not carry medical insurance then whine when they lose the gamble. If you spend your money wisely you won't be pushed over the brink by some bad luck. If however you are already at the brink already because you spend every dime you make, and borrow money for luxury items, it doesn't take much to push you over.

Daayuum!

So some other SOB has got my new car, and house and my gambling money AND my health insurance?

I just can't win!

 

[The Central Scrutinizer]

buy new cars with money they could have bought medical insurance with

Bingo. Someone a few weeks ago was complaining about how he couldn't afford health insurance, but somehow managed to afford what must have been a $40,000 pickup truck.

 

[TragicMonkey]

To be fair, it should be pointed out that health insurance, when not obtained via an employer, is not cheap.

Mine's equal to the average car payment. It would be a lot higher except that I'm young, have no medical problems, don't smoke, am not overweight, and have no dependents. If any of those were true, I'd be paying double or triple.

 

[Ladewig]

I have little doubt the vast majority of people with no medical insurance drink, smoke, gamble, do drugs, buy new cars with money they could have bought medical insurance with. They choose to gamble and not carry medical insurance then whine when they lose the gamble. If you spend your money wisely you won't be pushed over the brink by some bad luck. If however you are already at the brink already because you spend every dime you make, and borrow money for luxury items, it doesn't take much to push you over.


No, because it's the kind of thing people don't admit too. Also these sorts of people are just the kind that don't take any responsibility for their own actions in the first place. Otherwise they wouldn't act as they do. The fact something is difficult to quantify statistically doesn't mean it's false.

So you have "little doubt that the vast majority" could have bought medical insurance but chose to spend their money on other things. Have you ever tried to buy medical insurance on your own? Do you have any idea how hard it is to purchase even minimal levels of health insurance if you have ever been hospitalized for an illness? Do you have any idea how expensive medical care is if one does not have insurance and the price discounts that are associated with it?

 

[The Central Scrutinizer]

To be fair, it should be pointed out that health insurance, when not obtained via an employer, is not cheap.

Actually, I think it is fairly inexpensive. I'm 45 and was paying $130/month for health insurance. I recently added dental & vision, and got a slightly better health plan and am paying a little less than $200/month. For an individual policy, not a group. Far less than the payment on a $40,000 pickup truck.

 

[TragicMonkey]

Actually, I think it is fairly inexpensive. I'm 45 and was paying $130/month for health insurance. I recently added dental & vision, and got a slightly better health plan and am paying a little less than $200/month. For an individual policy, not a group. Far less than the payment on a $40,000 pickup truck.

Well, actually, that's not the case for everyone. Prices vary by location, among other things. I have an individual policy, and it isn't cheap. Which is what I was pointing out in the second paragraph.

eta: I'm not even going to bring up the fact that "cheap" is relative. $200 a month may be chump change to you, but it isn't to everyone. And no, not all of the working poor have $40K trucks.

 

[Meadmaker]

I am sure there are some people who didn't do anything to deserve it will be hurt ...

I'm not sure I care whether or not they "deserve it". They have debts. They have the ability to pay. They should pay.

The hospitals who provided the care to them deserve to be paid.

I suppose I would have to see a description of a realistic case in which a real person would be unfairly hurt by this law. The fact that I haven't seen such a case described in print suggests to me that those cases are so incredibly rare that they are flukes of a bizarre nature. If I saw such a case described, then I might rething my position, but in the absence of such a case, I am inclined to think that the opponents of this law are just a bunch of whiners.





An aside: When I met my wife, she was self employed with an income of about 19,000 per year. She was 34 years old. This was in the mid 1990s. She had health insurance.

Was it expensive? You bet it was, especially for someone who made 19,000 per year. With an irregular income from her business, she didn't always make the rent payment on time, but she always made that health insurance payment, including the part that covered 100% of expenses beyond a certain amount.

She could have just dropped it, because even under the new rules if she had suffered a catastrophic illness she could just declare bankruptcy. But that wasn't her style.

If you have above median income and have no health insurance, shame on you. Indeed, unless you are quite literally living in poverty, and have no health insurance, shame on you.

 

[Ladewig]

My biggest complaint against the proposed legislation is that it is a federal law. Laws dealing with people's inability (or alleged inability) to pay their debts should be made at the state level.

 

[Beth]

1. Insurance for a family is extremely expensive. When I was laid off and had to purchase it for my family a few years ago it was over $500 month. A tough payment to make when there were no paychecks coming in. We made it living off savings and severance pay until I got another job, but a lot of people wouldn't have had the resources to do that. In addition, insurance prices have been rising over the past few years at rates substantially above inflation. Currently my employer offers several options for insurance, but the least expensive of them for a family is still around $500. I shudder to think what it would cost me to obtain insurance privately at this point. At this point, the only monthly bill I have that is larger than insurance is my house payment. And if insurance costs keep rising at the current rate, it will surpass my house payment in a few years.

2. Even with insurance, people can have medical bills that they will never be able to pay off. I know of one family who ended up in bankruptcy court for medical bills and they had insurance. But her husband had had a rare illness, difficult to diagnose and expensive to treat. Once diagnosed and treated, he recovered but after insurance paid 80% of the costs they still had medical bills in excess of $1,000,000.

Even with fairly good jobs, that's a bill they couldn't even keep up with interest payments on. Now, I'm not sure what's "fair" or "right" or "just" in this situation, but that is what bankruptcy laws were designed for: to allow people who find themselves unexpectedly in a situation without the means to ever pay their debt. And a debt in excess of million dollars is something few people could ever expect to pay off.

Beth

 

[Meadmaker]

1. Insurance for a family is extremely expensive. When I was laid off and had to purchase it for my family a few years ago it was over $500 month. A tough payment to make when there were no paychecks coming in.


Been there. Done that. No fun.

But when I was in that situation, I know that I put health insurance above just about every other expense in terms of priority. I could eat beans every night, and turn the thermostat lower, but the insurance bill had to be paid. I know other people who did not make the same decision.

(Personally, I favor government programs which would guarantee that bankruptcy due to medical claims just couldn't ever occur, but that's another subject for a different time. Since we don't have those programs, I think it is every citizens' responsibility to make sure it doesn't happen to him.)

Of course, there are going to be rare cases, like the multi-million dollar illness you described, where even a person who does reasonable, responsible, planning might end up unable to pay bills. There are two points to be made about this.

First, I don't see why it is unreasonable to ask those people to pay a portion of their bills. If they have reasonable income, then some of it out to go to their creditors. The new law seems to allow this. It's not like the creditors will get everything they are owed. They'll just get a portion, and I think that's fair.

The second point is less about the law itself than about the political rhetoric and media coverage surrounding it. As I noted in the opening post, the media have been passing along uncritically complaints about this law. In particular, the article I read said that the law would impact low income people the hardest. Well, unless I missed something, that's hogwash. Low income people are specifically exempted.

 

[crimresearch]

Well, actually, that's not the case for everyone. Prices vary by location, among other things. I have an individual policy, and it isn't cheap. Which is what I was pointing out in the second paragraph.

eta: I'm not even going to bring up the fact that "cheap" is relative. $200 a month may be chump change to you, but it isn't to everyone. And no, not all of the working poor have $40K trucks.

$200 a month individual health plans quickly become $500 a month health plans for families..and what they do *not* cover can quickly add up to thousands of dollars in direct costs to the consumer.

It is not easy for everyone.

 

[Suddenly]

My biggest complaint against the proposed legislation is that it is a federal law. Laws dealing with people's inability (or alleged inability) to pay their debts should be made at the state level.

Bankruptcy has always been a Federal area of law.

I'm a rather large critic of expanding Federal power, but this is one that I can't really complain about being beyond their grant of power, seeing that Article 1 Section 8 of the Constitution says Congress has the power to establish "uniform Laws on the subject of Bankruptcies throughout the United States."

So as much as I agree with you as a political point that this is a better local than national issue, I have to admit that this is on pretty solid Constitutional footing...

(for once)