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Going to Texas for a Discharge?

posted by Bob Lawless

Yesterday, a practicing attorney left a note on a December post from Elizabeth Warren, "Bankruptcy Reform and Credit Card Losses." He wrote:

[A]s a consumer practitioner I have noticed a tendency among debtors to suffer the indignities of bottom feeding debt collectors rather than the indignities imposed by Congress. True creditors are not any better off, because they still write off debt, but now it is now bought up at deeply discounted rates by a developing cottage industry of bottom feeders who attempt to collect by being obnoxious. I have actually had clients move and leave no forwarding address to escape such practitioners as Collect America.

If this one report has captured a more general phenomenon, we have come full circle as a society. The United States did not have a permanent bankruptcy law until 1898, and there were various bankruptcy laws in effect for only 16 of the first 109 of this republic. That did not mean there was no discharge from your debts. Many debtors would simply move west, beyond the reach of their creditors. The phrase "G.T.T." or "Gone to Texas" was shorthand for a debtor who had moved to escape creditors. It is no coincidence that the United States enacted a permanent bankruptcy law about the same time as the frontier closed. Is history repeating itself? Debtors cannot move to the frontier anymore to escape their creditors, but is going underground the new "Gone to Texas?"

This comment also made me think about some of the concerns that were raised about the harsh 2005 bankruptcy law. Its proponents even admitted that the goal was to get fewer people to file bankruptcy. Of course, shutting the door to the bankruptcy courthouse does not solve hopeless financial problems. It just leaves consumers with hopeless financial problems with one less place to turn for a solution. I like to analogize the law and its proponents to shutting down a hospital and claiming to have cured disease.

There were concerns raised that the 2005 bankruptcy law might create a permanent underclass of debtors, perpetually hounded by creditors with no hope of being restored to financial health. It was not uncommon to hear the term "debt peonage" thrown around or to hear predictions that consumers in hopeless financial straits simply might go underground. We don't know whether that is happening, and one person's experiences does not tell us whether a general trend is afoot. The comments are open here, however. Does the comment represent a more general phenomenon? Are there debtors going underground, so to speak, to avoid their creditors? If so, has this behavior increased after the 2005 bankruptcy law?


"Its proponents even admitted that the goal was to get fewer people to file bankruptcy."

As discussed elsewhere in these discussions, as a whole, debtors tend to be reactionary. While the goal of getting fewer people to file bankruptcy (while continuing to use debt and pay credit charges) may be what was intended, getting fewer people to use credit is a very real possibility. In the days of "going to Texas" history is rife with accounts of pioneers who started over in their new location and did well. In this day of the ubiquictous social security number "starting over" is not a viable option. What is an option is avoiding the paradigm that caused the problem in the first place, overly available credit. I would really be interested in data showing trends in new credit after October 17th.

While I think that "debt peonage" is possible, I don't think that it will happen in Texas. Given Texas' generous list of exemptions and prohibition of wage garnishment, "G.T.T." may once again become a relevant phrase for those who may not be able to escape their creditors, but can escape any meaningful legal actions their creditors can take. Perhaps it will evolve into "G.T.T.U.M.P.W.S.Y.": Gone to Texas, Unplugged My Phone, Waited Seven Years!

Those that can't pay have gotten to the point of just turning on their answering machines and praying for an end to the nightmare. The feds can see their way to permitting ever more aggressive collections and ever more unfavorable terms to consumers. Yet, when the terms and predatory practice result in consumers folding under piles of fees and interest, the fed then calls those same consumers deadbeats.

Instead of bailing out the struggling consumer the fed chooses to bail out the investors on whose back an uncontrolled predatory business was built.

Without the return of decent bankrupcy laws there will be the creation of an underclass much like that which existed during slavery. The steam will build and sooner or later the pressure will come out. It can come out as a result of our government figuring out that it is their constituents that are being raped and the laws changed to protect the consumer from out of control business. Or, the pressure may be released as the constituents figure out that they are being raped.

That perception may shape the future of the use economy.

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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 (rlawless@illinois.edu) 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.