Saturday, September 10, 2005

Something else Congress could do in addition to appropriating funds

Katrina has been called the perfect storm.

It soon will be exactly that, but with the assistance of the U.S. Congress, for a group of people you may not have heard as much about lately.

Last May, the Congress passed and President Bush signed a bankruptcy reform bill which was largely written by the credit card industry. The bill, which is scheduled to go into effect on October 17, raises the bar for people to file for chapter seven bankrupcty. Under the new law, many people will instead be forced to file for chapter thirteen bankrupcty, which is much more onerous and opens up the likelihood of losing one's home or other assets. The new law requires that most of the people whose income is above the median for their state file chapter thirteen instead of chapter seven. The worst part of the law is that it requires that the court NOT consider the causes for the debts involved. So, people who are forced to file for bankrupcty due to job loss, horrendous medical expenses or a disaster like Katrina are considered exactly the same in court as people who went on a shopping spree at the mall and ran up a bunch of credit card debt.

So who is this going to hurt? For the most part, not the people you have seen on television every day in shelters or stadium seats. Those people face a horrific trial to come, and it will begin by burying the dead in their community in the coming months. But chapter thirteen bankruptcy is probably a trial they won't face, because nearly all of them will fall below the median incomes for their states, and if they file for bankruptcy it will be chapter seven.

The people it will hurt is another group of Katrina victims, a group that you probably haven't heard about as much. They are people, mostly from suburbs or wealthier parts of New Orleans or from coastal Mississippi, nearly all white, mostly homeowners, who probably left during the evacuation and may have found a hotel room in Jackson or Baton Rouge but who now may not have a home and certainly don't have a job to go back to. The hurricane destroyed over 400,000 jobs, including virtually every job in New Orleans except for a few hundred police and other emergency workers.

When these people cannot make their house or other payments, they may file for bankruptcy. But their income will be determined as if they still had a job (in fact, most of them technically do, they just aren't doing it or getting paid for it), along with other factors like last year's income. So their failure to earn income right now will have a minimal effect, and I suspect that many, if not most, will be determined to be above the median income for Louisiana or Mississippi (both states with overall a low median income). This will put them on track for chapter thirteen, and losing their homes (or they could just accept foreclosure and lose their homes that way). The home may be rebuilt, if it is insured for flood damage, or by Federal government aid (don't hold your breath on that one though, I have a friend in the Florida panhandle who knows people still waiting for Federal assistance from Hurricane Ivan last year, and who got hit again with Dennis this year), but they won't be the ones moving back into it. The banks will sell it to someone else and their years of payments will be no better than very high rent payments. And remember that by law the bankruptcy court can't consider their status as a Katrina victim.

It is true that most of these people are relatively wealthy, white, and live in areas that voted for George Bush heavily. They voted for Congressmen who supported the new bankrupcty law.

But just because someone is wealthy, white and Republican doesn't mean that they don't deserve compassion.

Here is my proposal:

Enact emergency legislation in Congress to suspend the effects of the new bankrupcty bill for one year for people residing in zip codes affected by Hurricane Katrina (this is a well defined group, and easier to determine than the degree to which any specific individual has been affected). If necessary, allow them to file for chapter seven (which includes a homestead exemption) under the old law.

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