The Bankruptcy Bill and Indentured Servitude

March 9, 2005
By Dan Gougherty

You really have got to hand it to the credit card companies, Republicans and a handful of Democrats. They have accomplished something in the new bankruptcy bill rarely seen in legislation – they have turned bankruptcy laws on their head and staged an attack on the Constitution.

Since the Constitution was ratified, Congress has passed several bankruptcy laws that have generally grown more progressive. Our current bankruptcy laws were largely established with the Bankruptcy Act of 1898 that allowed for our current system of voluntary and involuntary personal bankruptcies.

The Federalist Papers state:

The power of establishing uniform laws of bankruptcy is so intimately connected with the regulation of commerce, and will prevent so many frauds, where the parties or their property may lie, or be removed into different states, that the expediency of it seems not likely to be drawn in question.

In a weird way, the Founding Fathers' intent sounds like Bush's so-called self-regulation. The idea is that if given the proper financial incentives and penalties, businesses will self-regulate themselves. Bankruptcy laws that help debtors would ideally cause creditors to employee fiscally responsible lending practices, hence a sort of self regulation. For the most part the bankruptcy laws have worked as intended when creditors extend credit in a judicious manner.

The new bankruptcy law basically removes most opportunities for consumers to file Chapter 7 bankruptcies which discharge debts and instead dictates Chapter 13 laws which generally require full repayment. While Conservatives like to focus on "individual responsibility" when it comes to consumers, why should corporations suddenly be absolved from any degree of responsibility? That's what the new bankruptcy law does.

With the new bankruptcy law in their pocket, it is now open season on consumers. Without the risk of consumers defaulting on their 20% interest credit card balances, credit is going to be issued faster than ethics violation warnings to Tom DeLay.

Which brings us to the dirty little secret of the new bankruptcy law - an attack on the Thirteenth Amendment to the Constitution. For those of us who slept through high school civics or just don't flat remember, this is the amendment abolishing slavery and indentured servitude.

While the bankruptcy law won't bring back slavery, it does appear to lay the groundwork for a new form of American indentured servitude. By taking away a persons choice to file a Chapter 7 bankruptcy and start over clean, the debtor can now be obliged to pay everything back to the creditors no matter how long it might take. A debtor suddenly becomes an indentured servant to the creditor. A kind of debtor prison without the three squares a day.

Think of the possibilities. Give some 18 year-olds credit cards with a $25,000 credit limit and let them go to town. Before you know it, the poor suckers will only be making the minimum payment which makes the $25,000 worth of CD's and fast food dinners infinitely more valuable to the creditor.

Got unexpected troubles? Lost your job? Divorced? Injured on the job? Tough luck. You're stuck, indentured if you will, to paying that credit card off for years to come.

Sounds far-fetched? Not really. I am old enough to remember when getting credit meant something. Credit was not extended to college students or very young adults as they were rightfully deemed a poor credit risk. Even to this day, it is nearly impossible for someone less than 25 years of age to rent a car because of the insurance risk, yet they can get tens of thousands of dollars in credit to purchase the latest fashions from Old Navy.

So while conservatives and credit card companies like to rant and rave about personal responsibility, remember it is the creditors who will continue to irresponsibly issue credit, not be held accountable and effectively "indenture" debtors for years to come.

What's next? Who knows, maybe we will see the return of debtor's prison.

Visit Dan Gougherty's blog at www.ltobs.blogspot.com.