Bankruptcy reform bill nears overdue passage in Congress

Prospects have never looked better for passing a law that will make declaring bankruptcy exactly what it should be: more difficult and more painful.
We say that not because we are unsympathetic to people who have been caught up in economic tides over which they had no control, or even those who simply allowed themselves through inattention, ignorance or indifference to get in over their heads.
It's not that we don't feel for those people, it's just that we feel more for the people who will end up paying the bills in the long run. And that is the responsible consumer.
And it's not that we endorse the loose credit policies of credit card companies, which have been exposed from time to time for issuing cards and lines of credit to family pets or newborns. More often, and more deliberately, the credit companies make concerted efforts to snag young consumers, especially college students and recent graduates, hoping to hook them into years of indentured servitude during which they'll pay double-digit interest rates for such casual purchases as beer, cigarettes, fast food meals and gasoline.
The bottom line is that no matter how irresponsible the debtor and/or creditor may be, when someone goes bankrupt it isn't the credit card company or the department store that eats the loss. The loss is passed along in higher interest rates or higher prices to everyone -- good credit risks and bad.
Setting up a test
The legislation finally working its way through the Senate establishes a new "means" test that is intended to determine whether those seeking bankruptcy protection must repay their debts or be allowed to have them canceled. Under the current system, bankruptcy judges have the discretion to decide that.
It says, in effect, that if someone is capable of paying toward their debts for five years, they should do so, even if it is painful.
Not all burdensome debt is arrived at through irresponsible credit practices. Much of it, recent studies have shown, is medically related. But, again, if the medical consumer is permitted to simply write off his or her debt through bankruptcy, the hospitals and physicians holding that debt will readjust their fees and pass the losses along to paying patients, their insurers and their employers.
During most of the seven years that this legislation has been bottled up in Congress, bankruptcies have continued to climb. Last year new filings fell by 3.8 percent, but even at that there were 1,563,145 personal bankruptcy filings in 2004.
And bankruptcy filings vary widely from state to state. Alaska is the lowest, at about a half percent of households filing each year; Utah is the highest at 2.7 percent. Ohio stands at the eighth highest at 1.8 percent and Pennsylvania is 31st at 1.1 percent.
States continue to have considerable control over bankruptcy law and to that extent they may encourage or discourage bankruptcy, regardless of economic conditions. It is not unreasonable to have a federal standard that discourages bankruptcy, and now that the Senate has a chance to clear this legislation it should do so.