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Paying off the interest

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A whopping 1.4 million Americans filed for bankruptcy in 1998. While that trend has slackened somewhat in the first six months of 1999 due to rising incomes, the number of Americans declaring bankruptcy is still at alarming levels. In the debate over what to do about this phenomenon, two views stand out.

Consumer advocates say bankruptcies have surged because banks and credit-card agencies have been irresponsibly inducing people to take on debts beyond their means, and that most who declare bankruptcy have been forced to do so by a personal economic catastrophe, like the loss of a job, a family illness or divorce. The bankers and credit-card issuers blame the trend on people taking advantage of the law to run up huge debts and then escape responsibility for paying them by declaring bankruptcy.

Guess which view is dominant in Congress? Here's a clue: In the 1997-98 election cycle, commercial banks and financial service companies gave $20.8 million in large individual contributions (over $200), PAC money and soft money to candidates for Congress. A solid two-thirds of that total went to Republicans.

Thus, after a lengthy and contentious debate, the House voted by a veto-proof margin to make it a lot harder for people of modest means to discharge crippling debts. Its bill also gives credit-card companies the right to challenge bankruptcy filings, the right to collect those debts run up within 90 days prior to a bankruptcy filing, and equal standing with claimants of child support.

The new regulations also explicitly forbid bankruptcy courts, who have the job of determining how much income a bankrupt individual can shield from his creditors in order to pay his living expenses, from taking into account costs like health care.

Credit-card companies and commercial banks were the No. 1 and No. 2 sources of campaign cash raised by the lead sponsor of the House bill, Rep. George Gekas, a Pennsylvania Republican.

The House bill, and the version passed by the Senate Judiciary Committee, "are salted with language benefiting landlords, condominium owners, auto lenders, shopping center owners, and even bond rating agencies and entertainment companies," The Washington Post reports. "Lobbyists for leased housing groups, for example, backed a provision in the House bill that allows landlords to evict tenants during bankruptcy, a change from present law."

By focusing solely on the individual side of the bankruptcy issue, the House bill in effect gives a green light to the financial services community to continue irresponsibly offering credit cards to minors, people who are just emerging from bankruptcy and others with weak credit records. After all, Uncle Sam will act as the creditors' collection agent.

That is, of course, assuming the Senate -- which is set to take up the bankruptcy issue on the floor any day -- passes a similar bill.


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