There is no question that the consumer is struggling, personal income is down and now savings are taking a hit based on, presumably, the high rate of unemployment. The really bad part about those filing for bankruptcy is that before 2005 it was a good option for Americans, but since the reform it is a less attractive option for Americans.
There is no question that people took advantage of the bankruptcy laws prior to its “reform” in 2005, but not all people are guilty of that. Based on aggressive lobbying by credit card companies and banks the new reforms made it impossible for a quick filing or for judges to modify mortgages on top of making it very expensive and the fact that you have to attempt to pay back your debt before you could actually be approved for liquidation. The irony is that Joe Biden’s son was a lobbyist for MBIA and was one of the more aggressive lobbyists for the reform which somehow won favor with Joe Biden who was credited with persuading Democrats to approve the new rules. So much for fighting for the little guy.
The further travesty of the bankruptcy reform was that judges could not modify mortgages along with more expensive filing fees and the new rule saying you had to attempt to repay creditors before you could be approved makes bankruptcy not only embarrassing, but painstaking and very unfair to the individuals. I would actually say that if that reform never took place then most of the problems over the past year could have been mitigated, to a certain degree. Instead, Congress sided with the folks paying their bills, ie banks, and essentially said that the people they are supposed to represent do not matter.
Even with the terms of bankruptcy being more difficult and unfairly in favor of creditors, who already had ample rights under the law, new filings are at a new high. In July there were 126,434 filings which is a 34% increase year-over-year and an 8% increase from June of 2009. This is certainly no green shoot and a sign of the times with consumers drowning in debt and unable to repay their creditors. Simply put, filings will continue to go higher as unemployment increases and house prices decrease.
Congress should be acting to help its constituents and suspend the 2005 reform in order to help reduce the problem, over the long-term, and expedite the carnage. Since the only thing that has gone in the consumers favor is “cash for clunkers” it is high time Congress helps bail out the little guy, now. Another report out yesterday morning was the fact that these same banks who destroyed out financial system and received billions in TARP funds are now bilking the hardest hit in America for a total of $38 billion in total overdraft fees.
I think we are at a point were enough is enough and without a bailout of the consumer we have little chance of a real recovery. There needs to be an emergency bankruptcy provision that should allow for the 2005 reform to be suspended, but also enact a shorter time on individuals credit reports. This will allow for the worst of those who are indebted to file and start over again. The banks have already benefited tremendously off the backs of taxpayers and the current bankruptcy laws continue to favor banks while we double pay them back on our debt and with our tax dollars.