Thanks to the bankruptcy reform of 2005, brought to you by too big to fail organizations, debt collectors and Joe Biden via his lobbyist son, which makes filing for protection very difficult, expensive and a general waste of time for most as you must qualify now filings plummeted. That is until now while the economy is supposedly on the mend there is one number on the rise that is unquestionable, bankruptcies.
More Americans filed for bankruptcy in October than in any other month since the 2005 reform. The number of bankruptcy filings increased by 25% to 131,200 during October 2009 as compared to October of 2008. So far during the year of 2009 there have been a total of 1.2 million bankruptcy filings which surpasses all of 2008 1.1 million filings. Clearly this is an issue as there are so many claims that we are rebounding or turning the corner in the economy. If that were true why is it that the bankruptcy and employment numbers continue to climb, to disturbing levels.
It is also not just people filing for protection, but businesses as well with the number climbing some 30% from October of 2008. The most common form of bankruptcy for businesses is chapter 11 which rose the most in 4 months to 1,327 in October alone. Again, with things looking so good, according to economists, Politian’s or anyone else with a vested interest in talking up the economy, why is it that these businesses are failing? Clearly it is because things are not as rosy as we are being told.
To illustrate how bad this situation is going to get the estimate for Americans filing for bankruptcy this year is 1.4 million, there is only 2 months left in the year. Given how difficult it is to file for bankruptcy this shows how difficult the real world is for regular Americans. It makes me wonder if any economist or politician is paying attention to any of this at all. This is no longer a Republican or Democrat issue, but an American issue. While the banks got their bailouts and bonuses I think the regular people deserve something, besides a 1,990 page health care bill that no one will read and will do squat to improve anyone’s life.
With numbers like these and with, more than likely, an ugly employment report due this Friday it is time to get our priorities straight. The people need jobs, but the question is how do we get them since government spending destroys wealth and doesn’t create it. I would suggest some sort of long-term tax credit for hiring employees, not a onetime $3,000 who cares credit, but something with teeth. Better yet, let’s take TARP back and just cut everyone a check, they are not going to ever get rid of it anyhow, so if we are going to pay for it we might as well get the actual dollars.
There is no question that the consumer is struggling, personal income is down and now savings are taking a hit based on, presumably, the high rate of unemployment. The really bad part about those filing for bankruptcy is that before 2005 it was a good option for Americans, but since the reform it is a less attractive option for Americans.
There is no question that people took advantage of the bankruptcy laws prior to its “reform” in 2005, but not all people are guilty of that. Based on aggressive lobbying by credit card companies and banks the new reforms made it impossible for a quick filing or for judges to modify mortgages on top of making it very expensive and the fact that you have to attempt to payback your debt before you could actual be approved for liquidation. The irony is that Joe Biden’s son was a lobbyist for MBIA who was one of the more aggressive lobbyists for the reform somehow won favor with Joe Biden who was credited for persuading Democrats to approve the new rules, so much for fighting for the little guy.
The further travesty of the bankruptcy reform was that judges could not modify mortgages along with more expensive filing fees and the new rule saying you had to attempt to repay creditors before you could be approved makes bankruptcy not only embarrassing, but painstaking and very unfair to the individuals. I would actually say that if that reform never took place then most of the problems over the past year could have been mitigated, to a certain degree. Instead, Congress sided with the folks paying their bills, banks, and essentially saying that the people they are supposed to represent do not matter.
Even with the terms of bankruptcy being more difficult and unfairly in favor of creditors, who already had ample rights under the law, new filings are at a new high. In July there were 126,434 filings which is a 34% increase year-over-year and an 8% increase from June of 2009. This is certainly no green shoot and a sign of the times with consumers drowning in debt and unable to repay their creditors. Simply put, filings will continue to go higher as unemployment increases and house prices decrease.
Congress should be acting to help its constituents and suspend the 2005 reform in order to help reduce the problem, over the long-term, and expedite the carnage. Since the only thing that has gone in the consumers favor is “cash for clunkers” it is high time Congress helps bailout the little guy, now. Another report out this morning was the fact that these same banks who destroyed out financial system and received billions in TARP funds are now bilking the hardest hit in America for a total of $38 billion in total overdraft fees.
I think we are at a point were enough is enough and without a bailout of the consumer we have little chance of a real recovery. There needs to be an emergency bankruptcy provision that should allow for the 2005 reform to be suspended, but also enact a shorter time on individuals credit reports. This will allow for the worst of the indebted people to file and start over again. The banks have already benefited tremendously off the backs of taxpayers and the current bankruptcy laws continue to favor banks while we double pay them back on our debt and with our tax dollars.
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