Bankruptcy Deform Is A Year Old (October 16, 2006)

Bankruptcy reform is now celebrating the one-year anniversary of the effective date of its major provisions on October 17.  The legislation is implicitly premised on the assumption that the debtors’ attorneys were engaged in systematic fraud.  The legislation is also implicitly premised on the assumption that the Bankruptcy Judges were aiding and abetting the systematic fraud.  The assumptions are often not unfounded.  No matter how often Congress changes the Bankruptcy Code, however, it cannot change the Bankruptcy Courts.  The “Forum for Fraud” responds by developing new practices and folkways to circumvent the new rules and provisions.  Bankruptcy judges soon may bestow the “Judge Lifland Award” on the bankruptcy judge who is able to delivery the largest percentage of estate assets to the debtors bankruptcy counsel in a calendar year.  Congress responded by disregarding the input of bankruptcy judges and bankruptcy law professors.  This is not all good.  Everyone should be heard.

Congress capitulated to the wishes of the credit industry which substantially created the problem by mainlining credit to individuals who were and are not credit-worthy.  Easy credit is the crack cocaine of the middle class.  In addition, the credit crack dealers bury many  provisions in the fine print that are like improvised explosive devises designed to explode in the face of a consumer who makes one financial misstep.

The Founding Padres included an express provision to create some undefined bankruptcy protection because of concerns about debtors prisons then in existence in England.  The Republic needs a Code to address the debts of the honest but unfortunate debtor.  Uninsured medical expenses, loss of a job, or a divorce overwhelm even two pay check households that are often one missed pay check away from financial abyss.  America has an extremely inefficient national health insurance program codified in Title 11 of the United States Code, namely the Bankruptcy Code.  National health insurance with a single payer should be codified in Title 42 addressing health and welfare issues.  As a country, America is getting out of the business of producing anything which results unsurprisingly in the loss of American jobs.  Getting married is a money-saving undertaking; getting divorced is an expensive ordeal.  As they say, marriage is grand; divorce is one hundred grand.  The troika of troubles can swamp anyone.

The New Code passed by the Republicans is intended simply to make the process more bureaucratic and expensive; why more bureaucratic?  The New Code makes it more expensive for those individuals with no money to file bankruptcy.  The New Code is tied to some Internal Revenue Code provisions.  No new legislation should be tied to the IRS Code in any way because it requires major overhaul.  The last major revision of the Bankruptcy Code was undertaken in 1978.  With all the other growing problems, Congress is not likely even to pass some technical corrections to the New Code in the next ten years.  The safety net is shredded.

Bumper sticker of the week:

Happiness is a positive cash flow.

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