A Blogosphere Gone Bankrupt

As I mentioned recently, it now appears that a majority of the blogosphere, both on the right and the left, are opposed to the bankruptcy bill. While some might have very good reasons, I believe others might simply be misinformed about some of the details of the bill. Todd Zywicki, a law professor at George Mason University, wrote a great article on the bill and why it should pass and be signed into law.

One of the biggest criticisms of opponents is that means-testing consumers to see who might be able to repay some of their debt and thus file Chapter 13 rather than Chapter 7 is unreasonable and would harm the poorest victims. However, Zywicki points out the fallacy of this argument:

So how many people would be affected by means-testing? The estimates are that some 7-11 percent of current bankruptcy filers would be affected by the means-testing provisions of the bill. Roughly 80 percent of bankruptcy filers earn below their state median income, and so will get tossed out of the means-test immediately. For that 80 percent — roughly 1.2 million of the 1.5 million bankruptcy filers last year — the means-test will be completely irrelevant. They will be permitted to file chapter-7 bankruptcy just as under the current system. Roughly half of the remaining 20 percent of filers won’t be able to repay enough of their debt to meet the repayment criteria, so they will be dropped out as well and be permitted to file just as today. So in the end, only the highest-income filers with the largest repayment capacity will be affected.

But by targeting the most serious abusers of the system, the reform legislation will have a major impact on the bankruptcy system. This 7-11 percent of filers, on average, would be able to pay 60-65 percent of their unsecured debt in bankruptcy, such as credit-card and medical debt.

Basically, the bill is going to have no effect on those who truly are suffering hardship, but force those who can repay part of their obligations to do so. Read the whole thing - it's well worth it.