The New Politics of Bankruptcy
Recently Albert Winn, a long-time Congressman from Maryland, was challenged in the primary for his seat. His opponent, Donna Edwards, campaigned on several issues, but among the most prominent was her opponent's vote for the 2005 bankruptcy legislation. He had ignored the needs of his constituents, she argued, and favored the financial interests whose executives (not coincidentally) gave his campaign financial support. Ms. Edwards defeated that incumbent in a landslide (60%-32%).
Last month, in a nationally televised debate among Sen. Edwards, Sen. Clinton, and Sen. Obama, Tim Russert essentially asked, How could two of you have voted for the 2003 legislation (much like the 2005 legislation), even though it never became law (because of a dispute within the Republican House caucus over the dischargeability of judgment debt arising from protests at abortion clinics)? Sen. Edwards immediately said that his vote for the bill was a mistake. Sen. Clinton expressed regret for the vote, adding she was glad it never had become law. Sen. Obama pointed out his steadfast opposition to the bill once he got into Congress.
Why is a three-year-old, highly-technical set of amendments to an oten-obscure law now the stuff of popular political discussion?
First, it seems that the whole notion of who files for bankruptcy is changing. For a decade, Orrin Hatch, Joe Biden, Jim Sensenbrenner, and dozens of others in Congress decried the state of bankruptcy laws that permitted people to take advantage of financial institutions. With a recession bearing down, the language of bankruptcy has shifted from "abusers" who "take advantage of lenders" to language of concern over the growing stress on hard-working families.
Second, the subprime mortgage crisis has made it very clear that many lenders have not been playing straight with their customers. Worse yet, these lousy loans impose costs on everyone--the neighbors, the communities, the economy. A deregulated financial market has left the whole country--and perhaps the whole world--dangling over a financial cliff.
Third, the bankruptcy bill was about high-priced lobbying. Consumer debtors don't have PACs, don't have organizations to help them get their stories told, and don't have many friends anywhere. Financial institutions, by comparison, are big givers and big lobbyists. Any politician who is courting lobbying dollars will not speak up in favor of bankrupt families. As the Maryland primary showed, that door swings both ways. Those who wanted to snuzzle with the lobbyists leave themselves vulnerable to counterattacks.
Adam Levitin first called attention to the rising importance of bankruptcy in this presidential election. By my count, bankruptcy has now been discussed in at least four national debates and uncounted YouTube downloads. Both of the remaining Democratic candidates are putting out press releases relating to the candidates' various positions on bankruptcy laws and the related issues of credit. Because Senator McCain voted for the bankruptcy amendments, it is fair to assume that the issue will continue to bubble to the surface in the general election.
I dont' want to get too carried away. Bob Lawless pointed out the House and Senate recently introduced a measure to make it far easier for people to wipe away private student debts in bankruptcy. The provision is designed to undo a critical provision of the 2005 law. Senator Durbin is still pushing in the Senate, but two weeks ago, 52 House Democrats joined all the Republicans in voting against the measure. The American Bankers Association showed it still has plenty of muscle.
Even so, the 2005 bankruptcy amendments passed the House three years ago with just over 300 votes. When the new Congress convenes, 70 of those people will be gone for sure--death, retirement, conviction, primary losses, and announced retirement. Back in 2005, there was supposed to be no political cost to voting for the bankruptcy bill. Today, that seems to be changing. And if it changes for bankruptcy, maybe it will change for a lot of other issues that affect middle class families.