Ebook Bankruptcy Reform and Credit Cards by Michelle J. White
From 1980 to 2004, the number of personal bankruptcy filings in the United States increased more than five-fold, from 288,000 to 1.5 million per year.By 2004, more Americans were filing for bankruptcy each year than were graduating from college, getting divorced, or being diagnosed with cancer. A number of rich and famous people also filed for bankruptcy, which generated enormous publicity, raised public awareness of bankruptcy as a way to avoid repaying one’s debts, and suggested that bankruptcy was no longer subject to social disapproval. Famous bankrupts include former Governor of Texas John Connally, corporate raider Paul Bilzerian, actor Burt Reynolds, actresses Debbie Reynolds and Kim Basinger, rapper MC Hammer, singer Merle Haggard, U.S. baseball commissioner Bowie Kuhn, and boxer Mike Tyson (according to http://www. angelfire.com/stars4/lists/bankruptcies.html , 2007).
Lenders responded with a major lobbying campaign for bankruptcy reform that lasted nearly a decade and cost more than $100 million. Their efforts were unsuccessful during the 1990s, but in 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) became law. It made bankruptcy law much less debtor-friendly. Personal bankruptcy filings surged to two million in 2005 as debtors rushed to file under the old law and then fell sharply to 600,000 in 2006.
This paper begins with a discussion of why personal bankruptcy rates rose, and will argue that the main reason is the growth of “revolving debt”—mainly credit card debt. Indeed, from 1980 to 2004, revolving debt per household increased nearly five-fold in real terms, rising from 3.2 to 12.5 percent of U.S. median family income. As of 2004, households that held credit card debt had an average revolving debt level of $15,150, and the average bankruptcy filer had credit card debt of $25,000.Table 1 shows real revolving debt per household and the number of personal bankruptcy filings from 1980 to 2006.
The paper then discusses how the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005 altered the conditions of bankruptcy.Prior to 2005, bankruptcy law provided debtors with a relatively easy escape route,and many ended up having their credit card and other debts discharged (forgiven) in bankruptcy. The new bankruptcy legislation made this route less attractive by increasing the costs of filing and forcing some debtors to repay from post-bankruptcy earnings.
However, making bankruptcy law less debtor-friendly will not solve the problem of consumers borrowing too much. After all, when less debt is discharged inbankruptcy, lending becomes more profitable, and lenders have an incentive to offer more credit cards and larger lines of credit. In fact, during the first year that BAPCPA was in effect, revolving debt per household rose by 5.3 percent in nominal terms—higher than the rate of increase during any of the previous five years. This essay considers the balances that need to be struck in a bankruptcy system and how the U.S. bankruptcy system strikes these balances in comparison with other countries. I argue that a less debtor-friendly bankruptcy policy should be accompanied by changes in bank regulation and truth-in-lending rules, so that lenders have a greater chance of facing losses when they supply too much credit or charge excessively high interest rates and fees.
Downlaod
PDF Ebook Bankruptcy Reform and Credit Cards by Michelle J. White
Posted in :
