Warren Defends Times Editorial On Bankruptcy Reform and Hurrican Katrina:

Professor Elizabeth Warren challenges my criticism of the ill-informed New York Times Editorial the other day. Unfortunately, it appears that she falls into much of the same confusion as the New York Times itself did.

First, Warren takes issue with my insistence that the "special circumstances" exception in the legislation will protect the victims of Hurricane Katrina from the means-testing provision of the bill. This seems to be the Times's concern, although the Editorial is so vague, confused, and lacking in specificity it is not clear what precisely are the provisions to which the Times is objecting. She writes:

[Continue Reading Warren Defends Times Editorial on Bankruptcy Reform and Hurricane Katrina under hidden text]:

Jim Anderson (mail):
While your argument is well thought out, you clearly do not understand the challenges faced by people who are in financial trouble. You may not understand the callousness of your position on this issue until you suffer a catastrophic loss yourself. I know, I used to take your position. No one can be completely prepared for every eventuality.

This law is unduly harsh on people who have no intention to abuse banktruptcy, but just want to get their lives back. It is surprising to see such lack of compassion for victims of the worst natural disaster we have seen in the U.S. from congress and those who hold your point of view.

It isn't necessarily true that people in financial trouble are there because they created their own problems and need to pay the consequences. There are a lot of conditions outside of our individual control these days that cause financial problems, and it has to do with our overly complex legal system, and judges legislating from the bench.

We should be helping each other in this country, not fighting each other. Lincoln once said, "A house divided against itself cannot stand -- I believe this government cannot endure permanently half slave and half free." Though he was referring to the issue of slavery, I think the issue of debt and its consequences apply. We are dividing our country into the rich and the poor with debt, because without debt forgiveness debt destroys lives. Too many destroyed lives can weaken us and lead to our destruction as a country.
10.6.2005 1:30pm
Jeff Licquia (mail) (www):
In light of Jim Anderson's comment, I suppose this bit from Prof. Zywicki deserves repeating:

I must confess that it is getting a bit old simply correcting misstatements about what this legislation does. If you don't like the legislation, then simply say what you don't like about it. But let's talk about the actual legislation itself, rather than making up misleading horror stories or simply selectively criticizing special interest influence.
10.6.2005 1:59pm
Zywicki (mail):
I agree completely with the basic point, which is why it is imperative to preserve the fresh start for the poor and unlucky. The question to my mind is the extent to which rich and strategic should get a free pass or whether debt forgiveness should be conditioned on them paying back what they can.
10.6.2005 2:00pm
Daniel san:
If it is the paperwork and verification requirements that are the primary hardship, will the New York Times next call for the repeal of the tax code due to the impossible filing and verification requirements placed on many hurricane victims?
10.6.2005 2:07pm
Artful Dodger (mail):
I'm speaking here as a Chapter 11 practitioner who occasionally does Chapter 7 work for the CEOs or similar officers of our corporate clients. I've got two thoughts which may contribute to the conversation at hand. First, I'm not so sure that the objections many people have to BAPCPA are in its purposes or goals, but rather in the confusion that will inevitably arise through its application. To begin with, anytime a law this sweeping is passed, it takes a few years for the kinks to be worked out and for the statutes to function efficiently. For example, after the major 1978 bankruptcy reforms, SCOTUS wound up declaring major portions of it unconstitutional. On a related note, much of BAPCA is vague, or in some parts, contradictory. Quite frankly, we don't know how courts will construe the "exigent circumstances" or "special circumstances" provisions, or how they will deal with the drafting error in the homestead exemption (which has already caused mass confusion -- See In Re McNabb, 2005 WL 1525101, or the privacy issues for which no department (which was promised in BAPCPA) yet exists. Perhaps the immediate aftermath of the nation's largest-ever natural disaster is not the best time to resolve these problems. Especially because lawyers who make mistakes in filings can now be personally liable for a debtor's omissions.

My next thought deals with the larger picture. There are currently three major airlines in bankruptcy. K-Mart is in bankruptcy after having to compete with other, similar stores. Isn't this a sign that perhaps the abuse of bankruptcy is taking place more in the corporate world? If three major participants in an industry are insolvent, or one is spending a long time in Chapter 11, isn't that a signal that the market is oversaturated in that given area? Shouldn't we be doing things to encourage those resources to migrate to other sectors instead of propping up failing enterprises?
10.6.2005 3:06pm
Ken Arromdee (mail):

This law is unduly harsh on people who have no intention to abuse banktruptcy, but just want to get their lives back. It is surprising to see such lack of compassion for victims of the worst natural disaster we have seen in the U.S. from congress and those who hold your point of view.


Todd's point was that victims of the hurricane aren't actually being affected in the way opponents of the law claim they are. How is it a "lack of compassion" to point out that someone is not affected when they indeed are not?
10.6.2005 4:06pm
Dilan Esper (mail) (www):
I have raised this point before in comments to earlier posts, and I still haven't seen a good answer to it, so I will raise it again. If Todd Zywicki feels that the discretionary provisions of the law will be invoked by judges to protect Katrina victims, what possible objection could he have to Congress coming in and codifying that so that there is no doubt?

The answer, of course, is that he is afraid of another democratic debate by our elected representatives over this bill, because it might not still have the broad support it had before. (This sort of refutes his claim about how the special interests "canceled each other out" in the passage of this bill, too.) Indeed, it may be very likely that if a Katrina exemption were passed, other portions of the bill would be unraveled now that legislators have heard from their irate constituents.
10.6.2005 5:11pm
Why carve out specific exceptions for the 800 million different horrible things that can happen to people when you we already have a provision that can cover them all? If we protect them from hurricane victims, do we also cover tropical storms? What about a thunderstorm? What about other natural disasters? What advantage does your method have other than increased clarity for critics who are intentionally blinding themselves?

Also, you referred to "a Katrina exemption." You can't seriously be talking about making exceptions for individual disasters as they happen are you?

Also, if poorly written it seems it would rob the new bill of all its power if it instead created a presumption that anyone who had been through one of these listed events did not have to comply with any of the terms, rather than having someone show that they were actually affected to get out of the provisions.
10.6.2005 6:02pm
Jim Anderson (mail):
In reality, the system is already biased against debtors. I am talking about what happens in reality.

The poor and unlucky already get beat to a pulp by creditors. There is no forgiveness unless they are forced into it. In bankruptcy, the attitude isn't much different, except now the debtor is accused of trying to get out of paying a debt they should pay. While this is true, it doesn't take into consideration that the creditor may already have too much power in the business arrangement. When that happens, the weak tend to get trampled, because creditors know they can get away with that - legally. They take advantage of abusive terms in their adhesion type agreements, and end up making a tidy profit even when they have to sue. Then on top of that, judges tend to lean toward the creditor's side.

It is this kind of environment, it ENCOURAGES lending practices that trap unwitting people, (the normal everyday citizen that doesn't fully understand the complex financial agreements they sign - sometimes even attorneys) into a situation where they are given a financial shakedown by the system, or pickpocketed so to speak with high interest and fees. It is not much different than a legal con game.

This legislation doesn't help consumers, it protects lenders and gives them encouragement to lend more freely; a practice that only makes the poor poorer and the rich richer. Lenders need to be reigned in more, and encouraged to be more cautious in lending. The very principle behind the reform of this law takes us down the wrong path, assuming it is the creditors being abused. That is just not true in reality.
10.6.2005 7:29pm
Dilan Esper (mail) (www):

The reason to carve out an exemption is because the provisions that Todd Zywicki points to are DISCRETIONARY. In other words, judges CAN waive them, but what if they don't? Or what if judges find that certain requirements are non-waivable? Remember, this is a brand-new statute and there is no caselaw interpreting it. We really have no idea whether Todd Zywicki is right that all the Katrina victims who should get discharges will get them under these provisions.

Further, carving out statutory exemptions for specific disasters is done all the time. Congress often gives disaster victims more time to file lawsuits, more time to file tax returns, exemptions from paperwork requirements in establishing eligibility for government aid programs, exemptions from waiting lists and "caps" on aid programs, etc. This is standard operating procedure after disasters. The question isn't why the bankruptcy bill should be amended to grant such an exemption but rather why the bankruptcy bill should be considered "untouchable" as compared to other statutes and other disasters. The only answer for that I can see is political-- that its sponsors do not want the public through its elected representatives to get another chance to change some of its provisions.

I agree that any Katrina exemption should be well-written and drafted, but I am not too worried about it ending up unfair to the credit card industry. I am sure that Todd Zywicki as well as all their lobbyists and analysts will point out any unfair provisions before they become law.
10.6.2005 8:34pm
Cyn23 (mail):
It was my assumption that vague provisions like the ones discussed here were opposed by conservatives and their fellow travellers because it gave too much power to judges to make basically policy decisions.

The discretion, as noted by a couple comments, is pretty vague. Judges can but need not supply name in various situations. I'm with Dilan -- some clarity would be welcomed.
10.6.2005 8:48pm
Gene Vilensky (mail) (www):
I am amused by people arguing here that Zywicki and others should have known when calling for a change in the bill that a major hurricane was coming and that post-hurricane reconstruction is not the time for the court system to handle shifts in complicated legal rules.

Look, if bankrupcy law had problems, they needed to be fixed and it was just unfortunate that a disaster of this magnitude struck pretty much immediately after. There's nothing to do about that. Also, adding new provisions to the legislation and making new exemptions would seem to complicate matters much more. I am not terribly trustful of the ability of Congress to do much competently at this moment. They are both trying to make themselves look good by showing they care and scared out of their wits that asking tough questions about the usefulness of various provisions designed to deal with Katrina will then be played by Anderson Cooper, Keith Olbermann, Kanye West, etc. as racist.
10.7.2005 5:31am