November 23, 2007 at 08:11:41

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A Call for Bankruptcy Reform: A Message to the Presidential Candidates from 'We the People'

By Rev. Robert Vinciguerra (about the author)     Page 2 of 4 page(s)

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Suppose a two income family (the Johnsons) has an income of $100,000 a year. The husband makes $50,000 a year at the Post Office, while the wife makes $70,000 a year as a programmer. They have two children, two cars, and a mortgage. Their savings, debts, and expenses are reasonable for their income.

Then, the wife’s job is moved overseas - to India - for example. For a while, the Johnsons use their savings to stay afloat, and perhaps begin to use credit cards to help afford gasoline and groceries.

After a while, time runs out. Mrs. Johnson can’t find a job in her salary range. The jobs simply no longer exist. She is forced to accept a job at a $40,000 pay cut. Mr. Johnson takes a part time job to make up for lost income, but Mrs. Johnson must stay home with the kids after school. The increasing cost of daycare simply outweighs any benefit that taking second job would have had.

Struggling, the family can afford to pay their mortgage, utilities, and car payments. With help from their church, they can even afford enough food for their children to eat. However, they cannot afford their Credit Card payments.

Now imagine if Mr. Johnson passed away and there was only enough life insurance to cover the bills.

What if Mrs. Johnson got cancer, and could not work?

Even in the face of these types of hardships, many American families could persevere and overcome such financial adversity if it were not for the creditor’s policies, which literally force consumers in to a position where they require bankruptcy protection.

Unfortunately, under the BAPCPA, the Johnsons would lose their home, and their vehicles, because their Chapter 13 payment would be too high in all three scenarios.

None of these situations are fictional; they are all based on real events.

Adding Injury to Injury

In its lines and lies, the BAPCPA contains an unfunded mandate. It requires that consumers participate in a credit counseling session with an accredited agency. The mandate is unfunded, because Congress provided no funds to pay for the counseling.

Credit Counseling agencies typically provide free counseling to all consumers. This is because a certain percentage of those who go through counseling will elect to participate in a debt management plan (DMP); the number is approximately 25%.

The creditors of these 25% pay for a portion of the DMP through what is called “fairshare.” Consumers pay for the rest of their own program through an initial setup fee and/or monthly fees.

These consumers are also coming to a Credit Counseling Service because they think that they can avoid bankruptcy. None of them want to file – no one does. Studies prove that over 90% of Americans think that filing bankruptcy is immoral. As a counselor, when it was a clients only option, I often had to talk them into it just to avoid losing their home.

With bankruptcy counseling, however, the consumer already has no option. There is not a chance that they will go on a debt management plan, and the counseling agency is forced into a position where they have to charge for a service that the consumer does not need in the first place, and that the agency doesn’t want to provide.

Ivan Hand Jr., the president and chief executive of Money Management International Inc. (MMI), the nation's largest credit counseling organization, and this reporters former boss, told the Washington Post, “Typically, consumers are too far gone by the time they get to us.”

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