A question about bankruptcy law

Beth said:
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.
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Don't get laid off again -- you'll face sticker shock. Prices have risen precipitously. I'm self-employed and pay $990/mo for a family plan (2 kids). Plus the coverage is mediocre.
 
Ditto,

And it goes up significantly every year. The trend is troubling.

Back to the op, I'm one right leaning individual who thinks the laws are just fine the way they are. Most problems with debt collection lies with the creditors. Extending credit is inherently risky. Creditors do not want to take responsibility for extending credit to any and everyone. They charge windfall rates, buying money at a point or two above prime and selling it at 21%+. The credit game is so lucrative everyone wants in. However the creditors look at all of the money that they are hemorrhaging in bankruptcy and refuse to admit that the problem is largely their own. The blood loss is due to the fact that they want to give everyone credit.

The lesson is simple. Don't extend credit to those who are poor risks unless you are willing to accept that many will default.
 
Thanks, Aero.

The most interesting think I found in the link you posted was the following excerpt.

"Let me emphasize--I do not deny that many bankruptcies are caused by health problems. This is why the bankrutpcy reform bill carves out several specific exceptions for treatment of health expenses and health insurance."

So is it possible that with all the fuss about health care caused bankruptcies they are, like low income people, not affected by this law at all?

A bit of google research should find the answer.
 
The reference to medical expenses appears to be a proposed change, not implemented. As best I can tell from 30 minutes or so of google search, there are no exceptions in the new bankruptcy law for medical issues.

Here is what I could glean from a few sites. Under the new law, if you cannot pay your debts, and you have an income above the median level for your state, then you have to enter into a repayment plan. That plan figures your income minus reasonable expenses, and for a period of five years after you declare bankruptcy, you have to give the rest to your creditors.

So that guy with the multimillion dollar illness would be broke for five years. On the other hand, if he had ongoing unpaid medical costs, those are expenses. In other words, he gets to take those costs off of what he would pay to creditors. Likewise for the guy who lived a lavish lifestyle on borrowed money when he was making six figures, and now finds himself making no more than the rest of us. For the next five years, he's going to be living well below his new and reduced means, as he does what he can to pay the bills for his previous excesses.

Mind you, neither of those people will ever pay off the whole thing, and after five years, they are done paying.

I'm still looking for the down side.
 
Hey I know health insurance can be expensive particularly if you have many dependents. I don't think that is the best option for most people. I insure myself. If you put 400 bucks a month into a 401K in 20 years you will have 900 thousand dollars. Thus why insurance companies are so profitable. Even in two years at 400 a month you would have well over 12K which will cover just about anything that is likely to happen to you. Just don't spend all your money and save none and carry no insurance.
 
Meadmaker said:
Mind you, neither of those people will ever pay off the whole thing, and after five years, they are done paying.
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I think that it is valid to expect folks to pay their debts. I believe in personal responsibility.

I have some questions for anyone willing to answer.

What is the impetus for this bill?

According to the UPS The fastest growing crime in America today is identity theft.

The problem is clearly the unwillingness of credit granting companies to police themselves. Even if you have a block on your credit report that forbids creditors from granting loans without a signature they do anyway. They send un-requested credit cards through the mail. They send unsolicited checks through the mail. This is a very real and very serious problem.

What are our congressmen and women doing to address it?

What is the net gain for credit granting companies after they factor in bad debt?

Will credit granting companies lower interest rates if this bill is passed?

Should credit granting companies bear any responsibility for their actions towards consumers?

Bear in mind that the credit reporting agencies care nothing about individuals. If a mistake is made you must prove your innocence and then there is no guarantee that the problem won't resurface. In fact it is likely to resurface. Also, the credit card companies care nothing to come to your aid. They will reverse the debt after you jump through hoops but they will do nothing more. The have nothing but contempt for the consumer.

I simply don't get it. Credit granting companies are flush with cash. They regularly bury folks with debt. Ask yourself this question, how is it that a person could get so in hock that he can't climb out of the hole? Simple, disposable income is no longer the key qualifier that it once was. Anyone can get credit and they can get more credit than they can afford. Of course it is up to the individual to bear the responsibility but why should anyone shed a tear for the credit card companies? Why can't we deal with real problems facing our nation as it relates to credit?
 
Vagabond said:
Even in two years at 400 a month you would have well over 12K which will cover just about anything that is likely to happen to you. Just don't spend all your money and save none and carry no insurance.
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OBVIOUSLY, you haven't been hospitalized lately!

I had knee surgery about 2 years ago. ACL replacement.
Outpatient surgery - bill was $38K

My son just had tubes put in his ear last week because of continued ear infections. The fluid built up in his ear and would not drain, so he was beginning to have issues with his hearing.

He got to the hospital at 7:30 am and was home by 11 am of the same day. 45 minutes of that time was spent waiting in the loby and about the same time waiting in recovery. The doctor said the procedure was 5 minutes.

The insurance sent us a copy of the bill. It was $7800.
If you have no insurance you're on the hook for 100%.
 
Vagabond said:
Hey I know health insurance can be expensive particularly if you have many dependents. I don't think that is the best option for most people. I insure myself. If you put 400 bucks a month into a 401K in 20 years you will have 900 thousand dollars. Thus why insurance companies are so profitable. Even in two years at 400 a month you would have well over 12K which will cover just about anything that is likely to happen to you. Just don't spend all your money and save none and carry no insurance.
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That would be a best case scenario.

I had a kidney stone operation that came in at over $15,000 ...and that was 10 years ago.

Some prescriptions can cost hundreds per month per bottle of pills, and some conditions can require a dozen of different medicines..

A catastrophic illness can run up unthinkable bills.
 
RandFan,
I agree with the sentiment of your post.

Earlier, I asked, "What is the downside?" One downside of this bill is that it doesn't address some very real problems.

In my opinion, we should have stricter limits on how much credit should be extended to people. Credit card companies have some of the same moral failings as drug pushers, if you ask me.

But, having said that, I still think that people should be obligated to pay a portion of their debts if they are able to do so.

Some specific answers:

"What is the impetus for this bill?"

Record numbers of bankruptcies, which cost banks money.

"What are our congressmen and women doing to address it?"

This bill. (In my opinion, not enough.)

"What is the net gain for credit granting companies after they factor in bad debt?"

Varies. The big ones are publicly traded companies, so it isn't like they are hiding anything.

"Will credit granting companies lower interest rates if this bill is passed?"

This is an interesting question. My credit cards all have quite reasonable rates, actually. I have a few different ones, and none of them charge more than 8%. And in my case, none of them charge me a penny, because I never, ever, pay interest on a credit card bill.
When you hear about credit card companies charging huge rates, they are only charging what the market will bear. I don't know what to do about that. Do we outlaw making stupid credit decisions?

"Should credit granting companies bear any responsibility for their actions towards consumers?"

That's a tough question. All they have done is allowed consumers an opportunity to do something that they wanted to do, but shouldn't have done. They allowed consumers to borrow money when they couldn't afford it. Even under this bill, creditors will still lose a bunch of money when someone declares bankruptcy, so they are still "bearing responsibility" just not as much as they had before.
I hadn't thought about it in those terms before, but now that I have, I think that individuals should bear more responsibility for their own actions. That applies to this case and to a lot of other cases in American public life and law. (e. g. McDonalds bears a lot of responsibility for obesity in America, but I don't think fat people should be allowed to sue.) So, for that reason, this bill looks pretty good.

Thinking about it, it still seems that this bill serves the purpose of bankruptcy law pretty well. The purpose of bankruptcy law is to allow people to have an opportunity to live a decent life, instead of being hounded by debt forever. Under this bill, you have to spend five years paying back debts as much as you can, and then you are free. That's not bad.
 
Vagabond said:
Even in two years at 400 a month you would have well over 12K which will cover just about anything that is likely to happen to you. Just don't spend all your money and save none and carry no insurance.
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Yikes! Get thee to an insurance comany, man! It is very, very, easy to run up a bill of $12,000.

But Vagabond has a good point, as long as it isn't taken too far. Most people would indeed be better off putting aside their own money, and using it, instead of paying for insurance and using that. A wise choice would be to set aside money for normal things like doctor visits, and for small problems that would only cost a few thousand dollars, and then carry a much cheaper policy for catastrophic coverage.

I don't have any car insurance for exactly that reason. I set aside a few bucks per month, until I had enough to buy a new car if I needed one, and dropped my insurance. Saved a bundle.

On the other hand, Vagabond also illustrates a problem with bankruptcy. Assume he follows his own advice, and is then in a car crash where his medical bills hit $100,000. What will happen? He'll declare bankruptcy. And it will be said that his case was "caused by medical bills." Technically, that will be true. But is it really true?
 
Meadmaker said:
I don't have any car insurance for exactly that reason. I set aside a few bucks per month, until I had enough to buy a new car if I needed one, and dropped my insurance. Saved a bundle.
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Er, you mean, you dropped comp and collision, and kept the liability, right? If not....

Are you INSANE? You need liability insurance! If you hit a Mercedes and the passengers have to be hospitalized, you could wind up paying them thousands of dollars! Hundreds of thousands, even! Physical damage coverage for your own vehicle may be a luxury, but liability insurance is not. All it takes is a half second of inattention to start a huge wreck, and they'll sue you into the ground! Did you save enough to pay for buying someone a new BMW and paying for their medical operations, plus three years of physical therapy, plus an extra fifty thousand for pain and suffering?

Liability is the cheapest of the auto insurances, by the way. I have great coverage, and that part only costs me about two hundred a year.
 
TragicMonkey said:
Er, you mean, you dropped comp and collision, and kept the liability, right? If not....
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No way. Just stay off the streets while I'm driving.

But seriously, yes. Michigan law requires liability, and I would carry it even if it didn't.
 
Meadmaker said:
Thinking about it, it still seems that this bill serves the purpose of bankruptcy law pretty well. The purpose of bankruptcy law is to allow people to have an opportunity to live a decent life, instead of being hounded by debt forever. Under this bill, you have to spend five years paying back debts as much as you can, and then you are free. That's not bad.
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Hi Meadmaker,

Good post. It doesn't deal with identity theft but that is a side issue and can be argued to be a red herring.

I like the marketplace and I like personal responsibility. I agree with you about McDonalds and law suits.

As for the impetus? If Credit granting institutions want less bankruptcy there is a simple solution. Take responsibility, perform due diligence and don't grant more credit than a creditor can afford. As I said before, loaning money is inherently risky. Most people with average credit pay in the 21% range AIU. That's a hefty return.

I'm not so much against people being required to pay back some of their debt but I am against releasing the Credit card companies being let off of the hook even if it is only a small amount. Yes, I understand that they (credit granting companies) still must shoulder some burden but IMO it simply is not enough.

Just because you can entice someone to get into debt beyond his or her ability to pay is not a reason that you should be able to entice someone to do that. It really bothers me that we encourage that activity and then the government protects what would otherwise be usury by playing henchmen for credit companies.

I kind of liked that Credit granting companies got stiffed for being so arrogant and foolish. Though to be honest I don't think it is at all appropriate for individuals to take advantage of the Bankruptcy laws and the laws certainly don't reinforce personal responsibility.

That is why I would like a comprehensive bill that addresses identity theft and would allow a citizen to discharge any debt for creditors that can be shown to have extended credit when it was demonstrably wrong to do so. Credit granting companies should be required to perform due diligence before granting credit. But you and I know that is not going to happen. I have received pre-approved credit cards in the mail when I did not even have a job. As long as I managed to pay my bills on time I was considered credit worthy. That is just sad and irresponsible. You and I also both know that little if anything will be required from credit card companies to protect consumers from identity theft because our end of the equation is not important. Sorry for the side issue.

Thank you,


RandFan
 
Meadmaker said:
Yikes! Get thee to an insurance comany, man! It is very, very, easy to run up a bill of $12,000.

But Vagabond has a good point, as long as it isn't taken too far. Most people would indeed be better off putting aside their own money, and using it, instead of paying for insurance and using that. A wise choice would be to set aside money for normal things like doctor visits, and for small problems that would only cost a few thousand dollars, and then carry a much cheaper policy for catastrophic coverage.

I don't have any car insurance for exactly that reason. I set aside a few bucks per month, until I had enough to buy a new car if I needed one, and dropped my insurance. Saved a bundle.

On the other hand, Vagabond also illustrates a problem with bankruptcy. Assume he follows his own advice, and is then in a car crash where his medical bills hit $100,000. What will happen? He'll declare bankruptcy. And it will be said that his case was "caused by medical bills." Technically, that will be true. But is it really true?
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It might be easy to run up a bill if you actually go to the hospital but exactly what are the chances I will, being 40 a non-smoker and drinker in good health? About Zero. If I have a car accident which is also far fetched but possible I will pay. But, with insurance you pay whether you have the accident or not. At least insuring yourself if the odds kick in for you and you go hospital and accident free for along time. You will have a million bucks. Instead of the insurance company having it. If you are in bad health by all means get insurance. You should probably have insurance for children as well because they get sick more often than adults do. But, the chances of a serious illness or accident are very low. Otherwise the insurance companies wouldn't cover you in the first place.
 
RandFan said:

Most people with average credit pay in the 21% range AIU. That's a hefty return.
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Indeed it is. Perhaps a simple solution to a couple of problems would be to simply outlaw interest rates in that range. Credit companies will say that they need to charge extreme rates to people who are bad risks. Maybe they shouldn't be charging those rates.

Of course, that would also mean that a lot of poor people would be denied any credit at all. But I'm not so sure that's a bad thing, either.

That isn't an official Meadmaker Policy Position, but it is something I think is worth some thought.
 
One thing that is rarely mentioned is that this bill is good for everyone who actually pays their debts. If fewer people declare bankruptcy then the interests will be lower for everyone because the credit card companies lose less money.

This is a great bill for me because I do carry credit debt (due to some business expenses) and I will pay it back.

There is even a slight virtuous circle here. If fewer people declare bankruptcy, interest drop. If interest rates drop, fewer people will declare bankruptcy, etc.

Originally posted by MeadMaker
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.
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Why does everyone think that the rent is least important bill to pay? As a landlord, I sick of people who money for cable TV, beer and cigarettes but cannot pay their rent on time. I will admit that medical insurance is an important bill but I alway thought a roof was more important.

CBL
 
If you want health insurance it is not too expensive for a familly of four. It can easily be under $200/month.

Here is $177/month plan available in Bremerton WA.

40 year old man, 35 year old woman, 8 year son and 2 year old daughter. (All non-smokers)
$2500 deductible per person
25% payment required after deductible is met to a maximum of $7500.
3 free doctor visits per year.
No perscription coverage.

If you are healthy it is dirt cheap for 4 peope.. The $7500 sounds expensive but that is worse case per person. And it is "only" $625 per month (or $800 including the insurance.) Yes, that is expensive but that assumes someone gets quite sick. For most families it will much cheaper.

If you want complete health coverage it is another story.

Quote found via
https://www.ehealthinsurance.com

CBL
 
CBL4 said:
One thing that is rarely mentioned is that this bill is good for everyone who actually pays their debts. If fewer people declare bankruptcy then the interests will be lower for everyone because the credit card companies lose less money.
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Not necessarily. When the prime fell through the floor unsecured debt did not change significantly if at all. 21% rates remained 21%.

Like anything else credit is based on what the market will bear and not on costs. If there is significant competition and credit companies see an advantage in passing on savings they will. But there is historical precedent to know that is not always the case.

Losing less money will actually mean increased profits for the credit lending companies. Which is fine for me if we could solve some of the problems I mentioned. But that is moot now. The credit card companies got what they wanted the consumers got the shaft.

Let's check back every few months and see what the real credit card companies are charging and if there has been a change. I'm predicting no change.
 
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