March 04, 2005

A vivid first-person account of the impact of onerous debt and (in this case) the life saving effect of a bankruptcy, here. And an equally telling editorial as to why the Democratic Party is such a woefully inept opposition party, thanks in no small part to the provincialism of the senior Senator from Delaware, here.

UPDATE [3/5/2005]: Bankruptcy "reform" used to be one of my favorite topics (see here, here, here, here, here, here, here and here), but since a number of much louder voices have started to chime in, stating basically the same thing I used to, I will avail myself of the opportunity to write about other topics near and dear to my heart, and get out of the way once I dispose of the subject one last time.

As a politically-inclined blogger, my take on the measure currently before Congress is one of revulsion. It is a law designed by credit card companies to make life more hellish for people who made the mistake of running up charges on their plastic. Since many of those charges are a result of unforeseen medical expenses, the passage of the bill will transfer wealth from the most vulnerable part of the middle and working class to Kaiser Permanente and VISA. It will do nothing to stop actual abuses of the bankruptcy system, such as the practice in some states of granting unlimited homestead exemptions, or repeat bad faith Chapter 13 filings. Its passage will lead to a flood of bankruptcies, as debtors try to take advantage of the old law before the new one goes into effect, which may in turn lead to a tipping point that sends the economy back into another recession. The fact that such a bill could be seriously proposed in the halls of Congress I can attribute only to a shared predilection for coprophilia by GOP and Delaware Senators.

As a bankruptcy lawyer, though, lets just say I have a different take. Those of you who know me are aware of this character flaw I possess. I'm weak. I crave material things. The temptation of an easy life is overwhelming to me. And if this measure passes, bankruptcy professionals such as myself will make out like bandits.

You see, the "reform act" will do several things for me. It will generate more of an excuse to jack up my rates, since I will be called on to provide more services, such as tax analysis, before I can file a case. Right now, I'm limited by convention and local rules to what I can charge a client in a Chapter 7 to between $1200 and $2000. Above that, I have to get the permission of the court, and I'd better have a good justification. If a repayment plan is mandated by the court, I can use that to charge higher rates through the plan, making myself a priority creditor.

In addition, making the bankruptcy law more cumbersome and more fraught with danger for the debtor cuts out a lot of my competition, which comes from paralegal services that currently can prepare simple bankruptcies for much less than what I charge. Here in Los Angeles, maybe 40% of all Chapter 7 bankruptcies (the most basic bankruptcy, which leads to a straight discharge of debts most of the time) are filed by paralegals, and most Chapter 13's (the bankruptcy most favored by the new law, in which a repayment plan is proposed by the debtor, usually to save a home on the eve of a foreclosure) are done by "law offices" that are mainly fronts for paralegals. The proposed law will cut out the competition for Chapter 7's, while leaving untouched the more egregious abusers of the system to perform Chapter 13's.

And lastly, this legislative gift to legalized loan sharking will create a whole new niche in my profession: credit card attorneys. Right now, the credit industry doesn't get involved in bankruptcy cases unless there is clear fraud on behalf of the debtor (such as what happens when a debtor takes a new credit card with him to Las Vegas, cashes it out at the blackjack table, and returns home to file a bankruptcy the next day). Needless to say, a law that allows credit card companies to receive priority on having its debts paid will encourage more aggressive collection activities from that front, which, of course, means more work for people like me.

So that's it, in a nutshell. If the Bankruptcy Reform Act passes, I will finally have a chance to live out some of my fantasies. A house south of Valley Vista, a muscle car, a country club membership, even sex with women: all of that can be mine, should Congress pass this measure. Sure, it will make the lives of millions of people who have suffered the misfortune of a catastrophic illness or an ill-timed job loss that much worse, but if you look at the big picture, that seems like an acceptable price to pay for my being able to play a couple rounds of golf a week at Riviera. So get off your asses, and write your Congressman. I'm depending on it.

No comments: