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Obama: Amend Bankruptcy Laws

posted by Elizabeth Warren

As I write, Senator Obama is giving a major policy speech on bankruptcy.  So far as I know, he is the candidate to discuss consumer bankruptcy in a general election.  I can think of many reasons that bankruptcy is a terrible subject for someone running for president.  It is very technical (hard to wedge into a sound bite). It is depressing (no one wants to think about going bankrupt). It will annoy big-money interests (financial services gave big money to pass the current bankruptcy laws). 

Savvy handlers would advise against it.  So why would a presidential candidate make bankruptcy relief a visible part of his platform? 

Here are my theories:

First, bankruptcy policy is an integral piece of economic security for families.  When all else goes wrong, bankruptcy is the ultimate safety net. More importantly, bankruptcy rules affect all other consumer lending rules.  So, for example, if homeowners in trouble on their mortgages could reorganize in Chapter 13, the threat to file Chapter 13 would get more home mortgage lenders to the negotiating table. 

Second, Obama has history.  He voted against the bankruptcy bill.  He voted in favor of the amendments that would have eased the effects of the amendments. But his real history is deeper. He was a community organizer who saw first-hand the effects of aggressive lending.  He was a state legislator who felt the impact of federal pre-emption on his ability to protect the citizens he represented.

Third, McCain also has a history.  McCain has voted in favor of financial institutions since he first went to Washington.  He voted over and over for the bankruptcy bill, and he voted against the amendments to give medical bankrupts a means test exemption, against a uniform minimim homestead for older Americans, against limiting recovery for lenders who violate Truth-in-Lending laws.  After Katrina, McCain opposed an amendment to make procedures easier for victims of natual disasters.  The list is long.

The specific proposals are getting attention--expanded homestead protection, fast-tracking more consumers through bankruptcy, better protection for people hit by natural disasters (adopting Slipster Bob Lawless's proposals). 

But I'm attracted more strongly to the overarching principles for rebalancing bankruptcy: Obama talks of restoring the safety net, and making bankruptcy less friendly to the very creditors that pushed a family into bankruptcy. 

The deteriorating economy make bankruptcy a more urgent national issues. Bankruptcy and consumer finance are issues where the money and power is all on one side and the middle class families are on the other.  It is also an area where both candidates have an on-the-record history.  Senator Obama has now thrust bankruptcy issue into the national spotlight.



This is a great move by Obama. I'm sure he'll frame the discussion perfectly. Talk about how one sided bankruptcy laws are. How they are in place PURELY for the protection of lenders, even stupid and evil lenders. As if having a fed that will bail you out is not enough protection.

"Bankruptcy Abuse Prevention and "Creditor" Protection Act of 2005". Way to go Bob! You think that is why the Fed came out today exclaiming that they will crack down on shady lending practices? Then as an addendum, the fed extended the time for “the big guys” to borrow. It’s like the fed is saying, "It’s OK, I got it, I got it! You don’t have to talk about amending bankruptcy laws, we have it covered now". McCain get a clue! Let the middle class have a go! Republicans had eight years, four of them unchained. What did they do? BAPCPA! They passed it so quickly, they didn’t have time to iron out all of the grammar mistakes.

Agreed, Thx.

Here is a link to the FindLaw story on Obama and his Bankruptcy Speech: http://news.lp.findlaw.com/ap/a/p/1131/07-08-2008/20080708070505_14.html

Current and future Presidents do not make bankruptcy law. Article I,Section 8, Clause 4 empowers Congress to make bankruptcy law. I believe Democrats have been the majority these past two years. Regardless of word changes to bankruptcy law consumers will file for bankruptcy because of loss of income and debt. Maybe if lawyers would reduce or return to their pre BAPCPA fees we could reduce the number of pro-se filers.

Re Ray Bell's comment. BAPCPA was pushed through in that narrow window in 2005 when the Republicans held both houses. Up until then, for 9 years, Democrats had found ways to derail the legislation. The ultimate form of the legislation is probably attributable to the Republican leadership's fear that any amendments offered might derail the legislation again. They shut down all efforts at amendment -- even innocent efforts to simply clean up the language -- to assure its passage.

Who signs it into law? Who signed BAPCPA into law? Two years!? Mr. Bell, you know better than I that there would be no Amendments to the Bankruptcy laws when you cannot get the majority to agree and get the president to sign. How can democrats override a filibuster without it? How else can democrats get it passed over a veto? The 4 years I was talking about was when BAPCPA was signed. The GOP had the Majority in the Senate; in the House and the “Big” House!

I have an idea, Bankruptcy Attorneys should go back to their pre BAPCPA fees or reduce their fees when they do away with BAPCPA all together! Of course you are not accounting for cost of living. The “wars” made quick work out of that, don’t you think? You want consumer Bankruptcy Attorneys to charge less? Make the process easier and more streamlined. No "regular" attorney wants to do consumer Bankruptcies! There are thousands of Attorneys out there! How many do consumer Bankruptcies? It’s disproportionate whatever number you come up with. Even with what you are saying Mr. Bell Chapter 13 Attorneys fees are done mostly by “fixed” fee agreements and the “districts” set those “bright lines” on attorneys’ fees. Chapter 7 Bankruptcies are more than twice as complicated now. I think that it is a fair compromise, reduced fees for getting rid of BAPCPA. In any other form of law practice, for the same amount of work and client contact that a typical consumer Bankruptcy entails, you could bill at least 5+k. When a debtor is in Bankruptcy, every other problem the debtor has blossoms from or passes thru some part of the Bankruptcy system. ie. death in the household; loss of employment; car crash; decrease in wages; collections; where is my tax refund?; where is my stimulus check?; divorce; old car broke down; need to finance a new car because the other one is no longer working; roof got blown off in a thunderstorm; need to sell the home etc…. YOU NAME IT! The first call is always to the Bankruptcy Attorney, pre, post, confirmation and pre, post discharge!

There is no pro-bankruptcy constituency because no one ever thinks that they will ever be in bankruptcy, in spite of what Congress was told. I have yet to see my "bankruptcy dividend." In fact the economy has gotten exceedingly worse since the passage of BARF. Bear Stearns, a major player in the bankruptcy system, as a creditor, is out of business. Sometimes you really need to think about what you are asking for because you may get it.

Having spent a great deal of time on BAPCPA issues and lobbying on the debtor's attorney side, repeal of BARF is a pipe dream. The Means Test has lead to a great deal of litigation but it is mostly useless litigation and good planning would obviate it, if Judges would only follow the law and not try to fix Congress' screw ups.

As a public benefits attorney who is learning the ins and outs of BAPCPA, I am struck by how similar bankruptcy is now to welfare. Means tests, exemptions, disregards -- all these concepts are indigenous to poverty law, but now are being applied to (against?) the middle class.

I can think of a few ways. Is it a front to the middle class? Maybe not but at the very least was constructed with the intent to capture more of the middle class then ever before. I have no problem with that. If people have the "means" then by all means. Bankruptcy Attorneys generally make more on Chapter 13s than 7s...consumer 13s and 7s that is. What BAPCPA did in my view, was to complicate certain aspects of BK law that had previously been pretty clear. ie. valuation of vehicles, just to name one. It also had an unintended consequence of "scaring" off Bankruptcy Attorneys. At least locally, there are now fewer choices for debtors. Fewer choices for consumers means no competition on fees = higher fees for consumer 7s. The risk it seems for those attorneys out weighed the value of the compensation. Add to that the regular pitfalls and deadlines, trying to classify Attorneys as "debt relief agencies" etc. All of that could be pretty daunting for an attorney who does just a few every now and then. The name itself has "consumer protections" implied in it. When in fact BAPCPA did very little and provided “additional” protections. In fact, the "amendment" provided more "outs" for creditors when they violated the stay or discharge. On the "Means" testing: No one, I mean no one could see the type of inflation on perishables and fuel that we are currently seeing. The means test is based on figures 6 mo. prior up to the filing date. Yes, we can account for future changes but for the most part those are hotly contested. The middle class pays the majority of the taxes in this country and what BAPCPA did was inundate the UST with substantially more responsibilities. They even ran out of money to audit cases for a while. (Talk about "bigger government") More of our money is going there. We go by IRS guidelines as far expenses are concerned other expenses are “actual expenses”. The IRS is not revising those figures fast enough. The "means test" is meant to capture better figures on what people are making and expending. If we hit $5 per gallon gas, people who are above the "median" may be spending more than they are making and then at that point, their "13 plan" payments could become a burden. That "disposable" income is not so disposable any more especially for older 13s say…… 2005 even 2006 and 2007 chapter 13s. Can you remember what gas, eggs, milk and wheat were going for in 2006?

Health Insurance for all and no credit cards over 10% and BKs will drop significantly.

Yesterday, Barack Obama called changing federal bankruptcy laws to help military families, seniors and victims of natural disasters, and accused John McCain of repeatedly siding with the banking industry when Congress acted on the issue.

Just came across this and I know I am responding to an old post....but what are everyones thoughts now that Obama is going to be our president? Do you really think he is going to amend the bankrupty laws? Many of us are in such dire straights right now and I hope I voted for the right person! The bankruptcy laws need to be changed to help people avoid foreclosure, dischrge high interest, unsecured private loan debt, medical debt and so on. It seems like we are bailing out all the companies who put us into this disasterous debt, but nobody is helping the consumer!

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