4 posts from July 16, 2006 - July 22, 2006

Credit Slips from Getting Sick?

posted by Melissa Jacoby

Everyone is talking about household medical debt this week. American Enterprise Institute Research Fellow Aparna Mathur has just issued a report finding that “nearly 27% of bankruptcy filings are a consequence of primarily medical debt” based on an analysis of data from the Panel Study of Income Dynamics. Meanwhile, over at the Center for American Progress, we can find the results of a poll in which 44% reported being worried about falling deeply into debt because of medical expenses – more than were worried about being hurt or killed in a terrorist attack or losing a home in a natural disaster.

Medical debt deserves a prominent place on the public's radar screen and on the research agenda of scholars from a variety of disciplines.  Still, a slight reframing of the problem is in order.  Incurrence of catastrophic medical expenses is a serious policy issue but a rather rare event.  Flowing far more commonly from medical problems is the incurrence of non-catastrophic (but still substantial) out-of-pocket health and incidental expenses coupled with income loss, various opportunity costs, and the price of credit used to smooth consumption when household savings are not up to the task.  It is this more subtle and complex combination that is heightening financial risk for many American households.

Missing GAO study?

posted by Katie Porter

The much-maligned Bankruptcy Abuse Prevention and Consumer Prevention Act (BAPCPA) may have a bright side for a certain subset of consumers--those who want better bankruptcy statistics, including the media, policy wonks, and academics. Much of the recent bankruptcy reform debate was a battle of numbers as illustrated by the debate about the misnamed and miscalculated $400 "bankruptcy tax." In a forthcoming University of Missouri symposium piece entitled "The Bright Side of BAPCPA," I take a look at the potential of the new law to shape the world of bankruptcy data collection and dissemination.

As part of my research, I learned that the GAO has missed a statutory deadline to produce a research report. Under section 230 of BAPCPA, the GAO was to produce a study on requiring trustees to report debtors to the Office of Child Support Enforcement. The report was due 270 days after BAPCPA's enactment, yet GAO officials confirmed that the study has not even begun. Has bankruptcy slipped to the bottom of the GAO's priority list now that Congress has taken it off the top of its agenda?

Apparently the GAO has made some progress on the reaffirmation study required by BAPCPA. Perhaps the best news in this regard is that they have interviewed Professors Michaela White and Marianne Culhane, authors of the leading academic study on reaffirmation. Hopefully, other government agencies doing post-BAPCPA research will seek collaborations with academics and other researchers. For our part as consumers of bankruptcy data, we should let the GAO and other agencies know that we care about the required reports and expect them to be timely and carefully executed.

Security Freezes

posted by Bob Lawless

In this security-conscious era, a "security freeze" strikes me as a great name for the newest treat at your local ice cream store. As it turns out, a security freeze is something a consumer can impose on their credit report and will stop most attempts to access a credit report for purposes of extending new credit. According to Consumers Union, twenty-two states now have laws that allow all consumers to put a security freeze on their credit report before identity theft strikes. In a few states, only victims of identity theft can impose a security freeze.

To be sure, a security freeze is not a good solution for everyone. It can be a powerful tool to prevent identity thieves from entering into transactions and stop problems before they occur. But just as a credit freeze stops identity thieves, it also can stop consumers. For a consumer with a security freeze in place, even a transaction as simple as buying a cell phone might be delayed for several days while the consumer directs the credit reporting agency to temporarily lift the freeze. There is also the hassle and expense. In many states, a request for a security freeze has to be done through certified mail. It generally costs $10 per credit reporting agency to start a security freeze and another $10 each time one is temporarily lifted. Consumers should think long and hard before they impose a security freeze on their credit reports, consider whether the benefits outweigh the costs and hassle given their individual circumstances.

The House of Representatives has on its calendar another one of those perversely titled bills, the Financial Data Protection Act of 2006 (H.R. 3997), that would preempt all state security freeze laws and as well as some other state laws intended to prevent and protect against identity theft. The federal law would allow only victims of identity theft to initiate a security freeze, rolling back the choice twenty-two states have given to their citizens. Groups such as Consumers Union, the Consumer Federation of America, the AARP, and the National Consumer Law Center have spoken out against the House bill, saying “Consumers today would be worse off under this bill than if nothing passed.”

If the bill emerges from the House, its prospects in the Senate are unclear. The upcoming midterm elections may deter any congressional action on a law opposed by so many consumer groups. The bill does have strong support among financial interests so it could find legs in a lame-duck congressional session or in a new Congress next spring. It wouldn't be the first time that Congress has limited consumer rights under the guise of a bill that purports to protect consumers in its title. If truth-in-advertising laws applied to Congress, this bill would be entitled, "The Limit Consumer Choice in Credit Reporting Act of 2006."

Yet Another Blog

posted by Bob Lawless

Welcome to Credit Slips, a new blog on all things about credit and bankruptcy. In this space, the seven of us will be doing what we like to do when we get together--discussing and debating what does happen and what should happen when consumers and businesses borrow money. Because most every consumer or business borrows money, we hope to have a lot to say that will interest a lot of people.

We are seven academics who have come to know each other over the years and are now in the middle of a large research project known as Consumer Bankruptcy Project IV. The authors of the blog will be:

  • Melissa Jacoby, law professor, University of North Carolina
  • Bob Lawless, law professor, University of Illinois
  • Angie Litwin, Climenko Fellow, Harvard Law School
  • Katie Porter, law professor, University of Iowa
  • John Pottow, law professor, University of Michigan
  • Debb Thorne, sociology professor, Ohio University
  • Elizabeth Warren, law professor, Harvard Law School

More information about each of us appears in the links on the left-hand side.

We intend to make the site of general interest to anyone who is concerned about debt and credit issues, and we'll come at these issues from different perspectives. Among the seven of us, we have areas of special interest on debt such as how it especially affects families, entrepreneurs, the elderly, and persons in rural area. Basically, we'll be posting on whatever we encounter in our research and teaching that is new, different, or important. We'll try to keep the discussion lively and the topics interesting.


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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless ([email protected]) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.