Mark Winston Griffith
A Year Later: Bankruptcy Law Makes the Fat Cats Fatter
A year after the new bankruptcy law has gone into effect, there is further proof that credit card companies and the debt collection industry have gotten exactly what they wanted. In fact, the law was never about "protecting consumers", as cynically suggested in the name of the law when it was passed. Rather, the law was all about increasing the profits for a bottom-feeding financial services system built on the pain, suffering and price-gouging of consumers.
An October 24th article in the Wall Street Journal reports that debt collection companies like the New Jersey-based Asta Funding Inc. are benefiting quite handsomely by buying up more bad debt and more successfully collecting on it.
At the same time, my organization, the Neighborhood Economic Development Advocacy Project (NEDAP), fields hundreds of calls every month on our New York City Financial Justice Hotline. Everyday our Hotline staffers hear stories of aggressive debt collectors who often employ deceptive practices to collect on debt.
Any connection? Hmmm...
The Wall Street Journal article discusses in cold, hard terms why the "distressed debt" trade - the business of buying and selling delinquent consumer debt - is booming:
"...[R]ight now, many experts think higher interest rates and other factors will make it harder for many Americans to pay bills. Indeed, Bank of America Corp., the top U.S. credit-card company, said last week that credit-card payments at least 90 days late rose 5% in the third quarter from the second quarter...Since the bankruptcy bill, the quantity of these receivables has increased, given that Americans are finding it tougher to use bankruptcy protection to offload them...
"The Bankruptcy Abuse Prevention and Consumer Protection Act, which took effect a year ago, discourages
people from filing for bankruptcy by demanding they undergo credit counseling and imposing hefty paperwork. It also required many to file for financial reorganization under Chapter 13, which has requirements for repayment of unsecured debt, rather than liquidation under Chapter 7. Despite an expected surge of Chapter 7 filings prior to the October deadline, the number of bankruptcies has fallen sharply in the wake of the new law. Nonbusiness bankruptcy filings fell 69% to 263,700 in the first half of this year and Chapter 7 filings were 58.5% of the total in the first half, down from 75.8% a year earlier.
"For debt collectors like Asta, this shift means more people must repay their unsecured debts. It also means that more portfolios are coming onto the market because the credit-card companies -- which tend to charge off accounts that are more than 90 days delinquent -- only bundle and sell debt portfolios that are collectible. This means that many of those would-be uncollectible Chapter 7 filings are now collectible Chapter 13 filings, if they occur at all. Another side effect is that fewer people with accounts already held by debt collectors will declare Chapter 7, which in the past meant the account was a total loss to Asta...[D]ebtors often have many creditors knocking at their door when the chips are down, usually as the result of a life-changing event like a divorce or job loss."
Isn't it comforting to know that the bankruptcy bill has brought relief to Americans who need it the most: Credit card companies and debt collectors.