Call to Action: U.S. Senate to Pass New Bankruptcy Law that Preys on the Poor and Gives to the Rich

This week the credit card industry – which raked in $30 billion in profits last year – storms the Congress in an attempt to squeeze a few more dimes from Americans who are sick or out of work. Starting today the Senate will consider a bill (S. 256) that would amend bankruptcy law to "make it harder for families struck by financial misfortune to get back on track." (Nine out of 10 bankruptcies "are triggered by the loss of a job, high medical bills or divorce.) The bill is supported in Congress by a bipartisan coalition on the credit industry dole. They think they can pass the bill without the American people noticing. Prove them wrong. Write your senators and tell them to reject the legislation in its current form.

MORE UNNECESSARY BUREAUCRACY: The bankruptcy bill is an attempt to prevent people from filing Chapter 7 bankruptcy – which gives people a clean slate – and make them file under Chapter 13, which requires continued payments to the credit card companies. In order to qualify for Chapter 7, Americans would be forced to complete a costly and bureaucratic means test. This additional red tape is almost completely unnecessary. According to a study commissioned by the nonpartisan American Bankruptcy Institute, 96.4 percent of people who file Chapter 7 can't afford to pay anything more. The real intent of the legislation is not to prevent people from abusing the system but to make it so burdensome to become eligible for Chapter 7 that people who would qualify can't afford it.

LIKE TAKING MONEY FROM A BABY: There is seemingly no limit to the depths to which the credit industry will go to seek an extra buck. The bill they are trying to push through Congress threatens the welfare of children by endangering child support. If a custodial parent is owed child support from someone declaring bankruptcy, the parent will be forced to fight with other creditors (like auto lenders) for the debtor's limited income – even after the bankruptcy is completed.

GIVING MILLIONAIRES A PASS: The bill on the Senate floor right now doesn't stop some of the worst abuses of our bankruptcy system. In several states – including the president's home in Texas – a multimillionaire can declare bankruptcy, avoid his debts, and still keep his palatial estate. We've seen it happen time and again: for example, "Marvin Warner, a former ambassador to Switzerland and the owner of a failed Ohio Savings & Loan, who paid off only a fraction of $300 million in bankruptcy claims while keeping his multi-million-dollar horse ranch near Ocala, Florida." Another example: "Dallas developer, Talmadge Wayne Tinsley, who filed under chapter 7 after incurring $60 million in debts. Tinsley objected to the Texas law that permitted him to keep only one acre of his $3.5 million, 3.1-acre magnolia-lined estate. But that acre included a five-bedroom, six-and-a-half-bath mansion with two studies, a pool and a guest house." The 2001 bankruptcy bill at least stopped these abuses by capping the so-called "homestead exemption" at $125,000. This bill has a complicated exemption that will allow "wealthy debtors who are sophisticated enough to plan ahead – and those are, after all, the people we are talking about – can purchase a homestead to shelter their non-exempt assets and simply wait [49 months] before filing their petition." (Share your thoughts about the bankruptcy bill on ThinkProgress.org)

THE WRONG BILL AT THE WRONG TIME: The bill, which would make it harder for people to recover from financial problems, comes at exactly the wrong time. More Americans families are struggling because median income is stagnant, health care costs are skyrocketing, college tuition has exploded and child care costs are up. Once families are hit with big medical bills or family members lose their jobs, bankruptcy is often their only option. (For more on this issue, see this American Progress report.)