Bankruptcy Stigmas and the Lending Industry

Submitted by Jen Jones on Mon, 10/12/2009 - 12:09am

Bankruptcy Stigmas and the Lending Industry

We can't stress enough the value of bankruptcy for those who truly need it. Hey, it's no secret that our business is to help people correctly file and emerge from bankruptcy with a more positive approach to their finances. The truth is that without dependable legal assistance, many Americans would face a very difficult and extremely creditor-centric bankruptcy process.

Need evidence? Just look at 2005's Bankruptcy Abuse Prevention and Consumer Protection Act, which was conceptualized and heavily backed by the lending industry to ensure they re-gained an upper hand in bankruptcy court. Despite the prevalence of consumer debt problems, compounded by a faltering economy, many Americans operate under several misconceptions about bankruptcy that can often prevent or at least delay the decision to file. So let's clear up a few things.

First off, bankruptcy is by no means a haven for unmotivated, blameless folks who simply don't want to pay their bills anymore. Please.

No one hopes to lose their job. No one plans on having their multi-billion global employer (which provides a healthy, well-deserved salary) make shoddy investments and lay-off thousands of employees within weeks. Today's bankruptcy cases span all levels of income and "social status" and often stem from factors beyond the control of those who need to exercise its benefits.

More over, medical debt has driven a large portion of today's bankruptcies. How is being suddenly injured or stricken with a hard-to-fight disease an attempt to escape financial responsibilities? Many people who file for protection today are older than 65 and do so as a result of inescapable hospital bills.

In February 2005 a report was released in Health Affairs, a medical policy journal, that stated bankruptcies related to medical bills increased by 2,200 percent between 1981 and 2001. The majority of the cases in the study involved those who had insurance. Scary.

Truthfully, the idea that a person who files bankruptcy is irresponsible has been perpetuated by many of the same entities responsible for pushing anti-consumer legislature. There are simply too many unknown factors behind bankruptcy to ever assume a person is filing simply to get a free ride.

One would think, especially after the push and passage of the 2005 act, that the lending industry would be quite wary about to whom it extended credit. In other words, if they were so concerned with the number of those not paying them back, why did so many industry players provide avenues of credit, such as subprime mortgages, credit cards or lines of credit, to individuals who clearly demonstrated no ability to pay them back?

There is no hiding the fact that the lending world, as it is doing currently, saw an opportunity to quickly increase profits by providing money to those who did not have any. With steep late charges, interest rate spikes and hidden fees backed by exceptionally aggressive, tobacco industry-like marketing, financial industry leaders knew full well that money brought in from these tactics would far surpass that which would be lost in America's bankruptcy courts. As evidence, note that since 1997, bankruptcy filings have increased by 17 percent at the same time credit card companies have experienced a more than 160 percent rise in profit.

You tell us who's winning the credit wars.

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