Asymmetrical Information

Maybe we should have started a letter/e-mail writing campaign against it on blogs earlier. Write to your senator and let them know. I'm going to write to mine.

Forgive me for looking under the damp rock of human motivation...

Mr. Tepper's observations could be completely true, but there is an important sampling bias. Was he competing on price for the client business?

If so, he would naturally attract clients who did not want to do anything fancy, but were legitimately out of money. This makes him one of the good guys, yes; but it also puts him in a position where he will see only the type of client he reports.

In short, we should expect that, for many lawyers, the vast majority of their clients will be legitimate. Mr. Tepper is one such. However, as such, he has no insight into the shady side of bankruptcy and no way to estimate its prevalence.

Good points, Sammler. Where I worked as a bankruptcy attorney, however, the market was transparent and lawyers' fees were published as advertisements in thte local paper. Nobody deviated a dollar in terms of price; the fee was as low and anyone could go and still make some kind of living at it.

It is, I suppose, possible to charge more and "get away" with doing more, but that would be reflected in fee petitions that the judge and the public would be able to see. The bankruptcy bar all knew each other and gossip spread fast, so I don't think anyone could easily have done shady things.

I should also mention current enforcement mechanisms against abuse. The bankruptcy judge, the U.S. Trustee, the Chapter 7 or Chapter 13 trustee, and the creditors all scrutinize what is filed. In my own experience, they are good at catching even innocent mistakes. Every bankruptcy lawyer I knew had stories about being savagely bawled out by trustees for not having every t crossed. (When one trustee apologized—twice!—to me for not seeing papers he thought I hadn't included, well, that was just unheard of.) One lawyer was even raked over the coals in a published opinion for not investigating the prior filings of a client closely enough.

Again, I don't have access to systematic studies here, but the very job of the trustee and the U.S. Trustee is to ferret out fraud and abuse of the system. In the court district I worked in, anyway, they were incredibly thorough and didn't let anything by them, and were aggressive in combating dishonesty, fraud, and bankruptcy crimes.

The mechanism is already in place to deter abuse. If better enforcement is needed, I have zero problem with that. But making it harder for everyone to file for bankruptcy, even the honest but unfortunate debtors, is overkill and does not address the real problem in bankruptcy.

Having clerked in the pertinent court, I can tell you that the proper abuse concern arises in the high-net-worth end of the filings, an area that is explicitly carved out and protected in the current bill. It's not the $50k/yr couple with the med bills, or the three judgments arising out of stupidity, or the profligacy, that costs "us" all of this money that the bill's sponsors are so noisily protecting. When I would read the high-priced petitions, I would cringe, as would the judge, seeing that he was about to sign off on protecting more bucks than either of us would see in several years of legal work. Chapter 13 should have been mandated for those people, not for Julie Sixpack with her too-expensive used-car loan, overdue dental bills, and unfiled-in-court "lawsuit" judgments sending her paycheck proceeds directly from her bank account to her cable provider's collection lawyer. You can't imagine how many people get forced into BK simply because creditors already have such an easy time attaching their funds - people who are barely making it, thinking they have worked out a payment schedule with creditors but finding out after the fact that their meager savings and checking accounts were emptied yesterday by that creditor's attorney, incurring hundreds of dollars in bounced-check fees and violating other payment schedules.

I'm a hard-core republican. And this bill stinks.

I don't have an opinion on the proposed changes. I haven't studied them, but I am skeptical.

Having said that, I think there is a perverse incentive created by our current law. Many, surely not all, believe that bankruptcy is not too painful. Nor is there a lot of stigma attached to it anymore. Thus, bankruptcy is nothing to be avoided by planning to stay far away from the circumstances that might lead to it. While they may fully intend to pay their debts, they enter into them with the (false) belief that they can be relieved of them without much pain if they get into trouble. This leads them to take chances they otherwise would not. They incur debt they cannot repay unless that raise they are SURE is coming actually comes through. When the raise does not come through -- or anything at all goes wrong -- they are in deep trouble. Do we really want our law to encourage this kind of reckless behavior.

Oh, and I have some close realitives who each have been through bankrupcy more than once. They don't plan to become bankrupt, but they don't plan on avoiding it, either.

While I am skeptical that abuse by scofflaws is common, I agree that current dicentives are perhaps insufficient. That may not be reason enough to support THIS bill, but reason exists to support some type of reform.

However, the argument about the contribution of medical expenses to bankruptcy is a concern. As with every discussion of the US health system, proponents of a single payer system see any and all of its flaws as further evidence of the need for government to take it over entirely.

The equation is as follows:
People who go bankrupt have X% of medical costs, THEREFORE the medical system is corrupt, no one can afford it, and the government must take over!!!

Those who fear experiencing socialism first-hand tend to be quite touchy about such claims as a result. Although there is an element of truth to this, (i.e. who could go bankrupt in modern America without having SOME medical expenses??), it is a post hoc ergo propter hoc fallacy.

I just want to thank you all for writing about bankruptcy and credit card companies. It reminded me that my credit card payment was due yesterday and I had forgotten to make the payment. Thank goodness for electronic payment.

Oh, and btw, I am another abuser of the credit card system that causes credit card companies to charge such high interest rates.

I pay my bill in full every month and (almost) always on time.

They hate me (but not this month).

I only know one individual and one couple who have filed bankruptcy. The individual has an ex-wife who didn't live up to paying her share of the bills that they had no major problems with while they were a couple. The couple had racked up medical bills for their daughter's surgery. Just another bit of anecdotal evidence.

Me too, Denise - I don't think I've paid interest on a credit card in over a decade! Sorry, everybody... It's just more convenient and easier to track than cash.

Looks like the good guys one this one - 74 to 25!

Looks like the good guys won this one - 74 to 25!

(So excited I forgot my homonyms ;) )

Yes, the "good guys" (read - established firms) won and the "bad guys" (read - just about all entrepreneurs) lost.

This should be titled the "death to entrepreneurship" bill, or perhaps the "killing the goose that lays golden eggs" bill. All to add a bit more to the bottom lines of MBNA and NationsBank.

A few commenters at JustOneMinute pointed out that there's another aspect to this -- anti-relining laws, etc. that make it virtually impossible for the credit issuers to discriminate between applicants on any basis other than the heavy formulaic credit-rating calculator. Consequently, this bill solves the wrong problem.

I would like to propose a "Bloggers Crusade" with regard to legislation of all types at all levels of government.

I believe that, at a minimum, no legislator should be permitted to vote on any bill he or she has not read in its entirety. I would prefer that no legislator be permitted to vote on any bill before he or she has passed a test regarding the major elements of the bill, including both actual content and projected impact.

We could refer to this as the "No Legislator Left Behind" program. I suspect it would result, if successful, in the passage of many fewer bills, as well as in the simplification of the remaining bills so that the legislators could understand their contents. This would also make it easier for the rest of us, who end up being bound by the provisions of the resulting legislation, to understand the new rules under which we must function.

Scary thought, ain't it! Imagine, for example, the Tax Code written at the same degree of difficulty as the front page of the local newspaper. There used to be (may still be) a piece of software which would analyze the educational attainment level required to understand a section of text. I can only imagine the result it would provide if used to analyze randomly selected sections of the USC or CFR.

Ed,

The tax code, as it is currently structured, cannot possibly be rewritten in the plain language you're describing. Our multinationals would have a field day exploiting the new language and finding creative technical ways to reduce their tax burden. The better solution is to switch to a consumption tax, which, in addition to it's other benefits, gets rid of a lot of the complexity.

I view eliminating the current tax code and the related enforcement "service" as a real potential benefit. Bring on the Fair Tax. Make it the first plain language, "legislators-must-read-it-and-understand-it" law. Just spare us from a VAT; particularly, as some have suggested, in combination with an income tax.

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