Bankruptcy expert Elizabeth Warren calls it the "vampire bill."
That's because legislation designed to make it tougher for people to
dissolve their debts in bankruptcy court has been pushed on Congress
for seven years by banks, credit-card companies, retailers, and
other financial institutions. The bill passes either the House or
the Senate, even both houses in 2002. Yet it still dies. Then like
the mythical vampire, the bill comes back to life in the following
Most bankruptcy lawyers, and Ms. Warren, a Harvard University law
professor, wish Congress would put a stake through the heart of the
bill. But it's likely to return next year. How come?
"There is money behind it," says Warren. "This is about paying
off big contributors."
Credit-card firms and banks give generously to the reelection
campaigns of members of Congress.
The bill has greater significance than whether debtors will have
more difficulty discharging their obligations in bankruptcy court.
It could also impact the sturdiness of the economic expansion.
That's because more and more Americans are up to their eyeballs in
debt and interest rates are rising. If the cost of servicing debt
soars, consumers carrying big credit-card balances and other debts
may stop spending as much, dampening economic growth.
Retail sales in June were possibly a warning. They dropped 1.1
percent, the biggest decline since February 2003.
"The US economy relies primarily on consumer spending, but rising
levels of household debt can put a heavy burden on families," states
Samuel Gerdano, executive director of the American Bankruptcy
Institute (ABI). "When families sustain an unexpected financial
setback on top of this burden, they often resort to bankruptcy as a
Recent statistics are "troubling," says Travis Plunkett,
legislative director of the Consumer Federation of America. Among
* Personal bankruptcies peaked in 2003 with a record 1.6 million
cases filed - a rate of 185 an hour. That annual total is nearly
double the 812,898 filings in 1993.
* Household debt stood at $8.9 trillion last year, a record high
relative to disposable income, that is, income after taxes.
* Credit-card defaults rose more than 55 percent in the past four
* Home mortgage foreclosures are up 45 percent in the same time
Mortgage foreclosures, Warren says, not only may force a family
into homelessness, but can hurt home values on the entire street.
Proponents of the tougher bankruptcy measures say too many people
are gaming the system, engaging in a spending splurge, going
bankrupt to clear their debts, and then repeating the process. …