Congress is set to pass a bankruptcy reform bill which aims to close loop holes where people who can repay debts are getting out of them. Sounds fair, and maybe it is. I haven't done a ton of research on the bill but on the surface I can support something like that. Certainly people shouldn't be cheating out of debts which they could pay.

This bill strongly favors creditors. I think to really do any justice we need to also introduce credit reform that will benefit potential debtors. There's no point in forcing people to be responsible for their debts without helping them stay out of problems in the first place.

Here's my main complaint. Credit card companies in particular, but lenders in general, are all too eager to load people up with debt. That's the way they make money, so that makes sense. But they don't want to just loan you money. They want you to fail. They want you to miss payments. That's counter intuitive, I know, but it's the truth. When you miss a payment, they get to charge you a late fee. When you miss too many, they get to bump your interest rates sky high. Something I hope you never find out is that the more debt you get, the more offers for credit you will receive. Those people who are most unworthy of credit are the people most likely to be offered it. It's a horrible cycle where the only exit strategy is often banruptcy.

So before we have any talk about reforming bankruptcy, we really need to have reform of the credit business. There's an excellent article about how the system is failing consumers at PBS' Frontline site. It's long but very lucid. The one most important point that I took home from that article is that usury laws need to be revamped to cap the maximum interest rate that can be charged. Tie it to prime so that fluctuations in the economy don't hurt lenders, but limit it so that the incentive to drive people into overwhelming debt it eradicated.

We need to keep people from shirking their responsibilities but we need to prevent predatory lending practices that are forcing their failures in the first place. If the lending industry truly wanted to limit bankruptcy they would support reform like that. But of course, that won't help their bottom line.


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