Bankruptcy Bill: Why Is the Blogosphere Against It?

Much of the blogosphere is opposed to the recently passed bankruptcy bill. There are way too many to list but Politology, Instapundit and Bizzyblog have some roundups against the bill. Todd Zywicki has some good stuff defending it. Some have said it was “rammed through” by Republicans (even though the only “Nays” were from far left Democrats – with the exception of Lieberman and Feinstein). The main arguments of the opposition portray people who file for bankruptcy protection as innocent victims – of “evil” credit card companies or circumstances beyond their control. There are obviously people who have gone through financial hardships through little fault of their own – whether due to medical problems, job layoffs – or perhaps simply financial naiveté or foolishness. When people buy products, however, they are making an agreement to pay for those services. It doesn’t matter whether the form of payment is cash, credit or check. I simply don’t believe that most circumstances, as unfortunate as they might be, warrant a cancellation of buyers’ agreements to pay for the goods they bought.

One of the surprising arguments (from select conservatives as well as liberals) is the manner in which they describe the beneficiaries of the bankruptcy bill. For some reason, it is the “evil” credit card companies that should take responsibility for any losses they incur in bankruptcies because they should never have given credit in the first place. This blanket generalization just does not work for me.

There is no doubt that credit card companies will benefit from the proposed bill. However, there are also many other beneficiaries: banks, retailers, and numerous other small businesses, almost all of which have some form of credit plans. For some reason the term “pro business” is often synonymous with wickedness. Yet who is it that runs the millions of business across the country? That’s right – ordinary people like you and me. Because a business is profitable does not disqualify it from deserving to collect the bills it is legally entitled.

I also have not heard opponents of the bill mention the subject of bounced checks. As small businesses know, collecting from people who bounce checks is an extremely difficult process. Most people who do not own credit cards write checks as a form of payment instead. If credit cards did not exist, consumers would likely write more checks. In the event of a Chapter 7 bankruptcy filing, businesses or individuals who hold bounced checks will typically never receive any payment. Under Chapter 13, there is a possibility for receiving part of the payment they are rightfully entitled.

Finally, many people who file for bankruptcy protection are good, honest people who want to repay their obligations rather than being viewed negatively. I believe that entering into a court-approved process of even partial repayment will help eliminate the “deadbeat” stigma attached to many bankruptcy filers. In the long run, this is a good thing for those who file.

The bill is not perfect. One element of the new bill in which I have some skepticism is the mandatory credit counseling for would-be bankruptcy filers. While many could use some financial advice, I’m skeptical of any forced credit counseling. I view it as similar to being forced to take “sensitivity training” for making politically incorrect comments at a university. And in the case of bankruptcy, paying for potentially poor advice doesn’t seem like a particularly positive aspect of the bill.

Still, the bill is long overdue. While there are always extraordinary exceptions of personal hardship, there are a growing number of people who abuse the system to rid themselves of personal obligations without considering the businesses or people they are hurting. That “credit card companies are highly profitable” and would benefit from the bill is not a sufficient reason to prevent those who can, to repay part of their financial obligations.