March 12, 2005

On Bankruptcy Law

Rick Heller rails against the tide of "libertarian" bloggers who deride the new bankruptcy-limiting bill as a one-sided piece of legislation, pointing out that it only affects people of means who choose to declare bankruptcy, leaving the way clear for the genuinely poor. He calls the backlash against the bill "yuppie rage." Heh.

The issue has provoked spirited debate at Dean's World, with great arguments being made on each side. I'm inclined to think that it would have been preferable to include some restrictions on the credit industry as regards pre-approved offers, but I have to say that as my credit score has slid, once again, into the gutter, I haven't been getting any of those lately—so the "predatory practices" only go so far.

What I've observed in my personal life has been that the people who declare bankruptcy tend to do it frivolously, in a fairly cavalier spirit. They tend to be either spoiled trust-fund babies or people with generous incomes who spend a bit beyond their means. There's often some form of wealth that's a bit beyond the reach of the law, such as family money that isn't theirs quite yet.

It's interesting to me that Debtors Anonymous used to prohibit bankruptcy as a tactic for its members, but now apparently takes the stance that in some cases it's permissible, leaving the matter up to individual conscience.

I'd like to see reform of credit-company practices; I really would. But I'm having a hard time advocating the current loosey-goosey approach to bankruptcies, which amounts to legalized theft.

There's got to be a middle ground.

UPDATE: Gail Heriot of National Review debunks the Harvard study that purports to show half of bankruptcies are due to medical bills. Among other methodological flaws, the study treats drug addiction and compulsive gambling as illnesses, and labels any BKs in which those factor in as "medical," whether there are any medical bills at all. In fact, 75% of the bankruptcies in the study involve medical bills of $1000 or less (not $1000 a year; $1000, period).

The study is very up-front about its bias, which is that there should be universal health-care coverage without any co-payments or deductibles or limitations at all. Yet its highly massaged data is being reported as gospel by the mainstream media. Scary.

Via Joe Gandelman, working the weekend shift at Dean's World.

Posted by Attila at March 12, 2005 04:17 PM

Agreed. I've seen one genuinely deserving case, but the rest of the BK's I've seen were the result of a mixture of stupidity and a lack of self-control.

Posted by: JD at March 13, 2005 05:47 AM

There was recently some press given to a statistic that not quite half of all personal bankruptcies are for inability to cover medical expenses during a serious illness. Further, approximately half of those bankruptcies were among middle class individuals with health insurance.

It surprised a lot of analysts, because the popular perception is that "credit card bankruptcy" is the most prevalent. (It certainly EXISTS, we know) The conclusion the CNN writer reached was that most Americans are one serious illness away from bankruptcy.

From my own experience of losing my father a year and half ago, I can see where that would be true in the case of a lingering illness.

As usual, comments are welcome.

Posted by: douglas brown at March 13, 2005 09:07 AM

Yes, but I've heard that there's tremendous controversy over that study, and that others find that medical expenses drive very few BKs--a tiny fraction.

We should be able to get some facts on this.

Posted by: Attila Girl at March 13, 2005 11:21 AM

Great. That is one report I would dearly like to learn is false.

Posted by: douglas brown at March 13, 2005 03:53 PM

See my update on the main post.

Posted by: Attila Girl at March 13, 2005 05:44 PM

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