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As I See It

Congress is once again toying with reforming the bankruptcy laws. A recent Senate bill would amend the bankruptcy code to make it somewhat more difficult for middle-income consumers to escape all their debts by filing Chapter 7. The House passed a similar bill last year.

The lenient provisions of the 1978 bankruptcy code coupled with easing of credit availability has created a situation where more than a million Americans declare bankruptcy each year. Credit cards seem to be a major culprit. As recently as 1968, banks carried only $1.4 billion worth of credit card debt. Today, credit card debt has increased by a factor of 50 as compared to 1968. By way of further comparison, in 1968 auto loan debt was 20 times greater than credit card debt; today credit card debt is 25% higher than auto loans. This evidence is probably sufficient to convict credit cards of being a national travesty.

It would be easy to blame the credit card companies for making their product so easily available. The exorbitant rates of interest charged make paying off a credit card difficult. On the other hand, the interest rate is required because of the exorbitant rate of default by card holders. It is tempting to just make the minimum monthly payment and feel that all is well and that progress is being made toward paying off the debt. Unfortunately, the truth is somewhat different.

Wait a minute! Who’s responsible for our financial decisions? Are we suggesting that temptation absolves us of responsibility? If that is true then an iron-clad defense to any accusation against us would be a showing that we were tempted. Theft? Marital infidelity? Drunk driving? You name it. If we were tempted, then are we not responsible? No, resisting temptation is an important character trait that all of us must develop if we are to be successful in life.

Should we eliminate bankruptcy relief altogether? I don’t think so. From its inception, our country has a history of being merciful toward debtors. After all, many of our ancestors came here to escape European debtors prisons. Even the greatest among our founding fathers, Thomas Jefferson, owed the then-staggering sum of $100,000 at his death in 1826.

No, I think an escape hatch for the truly debt ridden is necessary. However, I agree with the Congress that the escape should be for the debtor’s person and not be stretched to include all his possessions. Under the 1978 Code, you can file bankruptcy and keep your house, car and retirement accounts. I believe this is excessively generous. Bankruptcy provides a fresh start but should not be insurance against inconvenience.

Early indications are that President Clinton will oppose reforming the bankruptcy code, though the House and Senate versions of the bill both passed with veto-proof margins. Beating-up on the President has become a national pastime and it is not my purpose to pile-on, however, why am I not be surprised the he would oppose a change requiring increased penalties for character lapses?

THOUGHT FOR THE MOMENT

We were put on this earth for one purpose, and that is to make it a better place. We should, therefore, be contributing members of society. And if the earth, as a result of our having been on it, is a better place than it was before we came, then we have achieved our destiny.

General James Doolittle (1896-1993), U.S. Air Force

Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. His e-mail cpajones@msbusiness.com.

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