BANKRUPTCY LAWS: HOW THE RICH STAY RICH AND THE REST OF US SUFFER

In the latest example of the use of bankruptcy laws by the rich to stay rich while others suffer, Rudy Giuliani just filed for bankruptcy after our justice system ordered him to pay Georgia election workers Ruby Freeman and Shaye Moss $148 million for defaming them. His public defamation of them led other Trump supporters to harass and threaten them and their family members, forcing them out of their homes and to live in fear of being assaulted.

(Note: If you find my posts too long to read on occasion, please just skim the bolded portions. They present the key points I’m making. Thanks for reading my blog!)

By filing for bankruptcy, Giuliani protects himself from having to pay Freeman and Moss for now. It may well be years before they get any money from him under the court’s order and it’s likely they’ll get far less than $148 million.

As you probably know, Trump companies filed for bankruptcy on multiple occasions, which allowed him to keep his wealth while others, including small business contractors and employees, got nothing or much less than his companies owed them.

Meanwhile, over the last forty years, Congress has passed laws making it harder for average people to declare bankruptcy and get relief from debts, while they’ve made it easier for large corporations, including Wall Street financial firms and banks, to do so. [1]

For example, homeowners can’t be relieved of mortgage loans on their primary residence by declaring bankruptcy. This protects banks and financial institutions while hurting homeowners. During the 2008 financial crash, 5 million homeowners lost their homes because they couldn’t get protection from bankruptcy laws. Meanwhile, Congress and other federal agencies provided hundreds of billions of dollars to large banks and financial institutions to keep them from going bankrupt.

People with student loans also can’t be relieved of them by declaring bankruptcy. Student loans are now 10% of all debt in the U.S., more than credit card and auto loan debt. (Only mortgages are a higher portion of debt.) The law allows student loan lenders take money directly from debtors’ paychecks, including Social Security checks if people collecting Social Security still have outstanding student loans! The only way to escape student debt is to prove that repayment would impose “undue hardship,” a more difficult standard to meet than is required of gamblers trying to escape their gambling debts!

Furthermore, filing for bankruptcy costs money. Typically, it costs at least $50 to file for bankruptcy in court and potentially hundreds of dollars for other fees. The cost of a lawyer can, of course, be substantial, and because attorney’s fees, like many other debts, are wiped out in a bankruptcy, most bankruptcy lawyers require cash up-front. This all means that many people who would benefit from filing for bankruptcy can’t afford to do so.

Bankruptcy laws are a perfect example of the fact that there’s no such thing as a “free market.” The market, i.e., the operation of our economy, is determined by the laws that are enacted by legislatures, Governors, and Presidents, as well as how they are implemented by the courts.

The laws that determine how the economy and markets function reveal whose interests our policy makers are protecting and making the priority. The current bankruptcy laws make it clear that wealthy individuals and businesses are the priority for our policy makers; they are being protected while the rest of us suffer.

Senator Elizabeth Warren (D-MA) and others have introduced the Consumer Bankruptcy Reform Act in Congress (S.4980). It would simplify and streamline the personal bankruptcy process as well as reduce filing fees. It would help individuals and families facing a financial crisis, who are disproportionately women and people of color, get back on their feet. It would allow student loans to be forgiven in bankruptcy and it would help those in bankruptcy avoid eviction, keep their homes and cars, and discharge local government fines. The law would protect people in the bankruptcy process by prohibiting and punishing illegal behavior by debt collectors and others. It would also close loopholes that let the wealthy exploit the bankruptcy system. The bottom line is that the bill would improve fairness and equity in our financial system, while strengthening a key piece of the social safety net. [2]

I urge you to contact your U.S. Representative and Senators to ask them to support the Consumer Bankruptcy Reform Act (S.4980). You can find contact information for your US Representative at  http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Reich, R., 12/28/23, “Why can only the rich and powerful go bankrupt?” (https://robertreich.substack.com/p/who-gets-to-use-bankruptcy)

[2]      Warren, Senator E., 9/28/22, “Senator Warren and Representative Nadler reintroduce the Consumer Bankruptcy Reform Act,” (https://www.warren.senate.gov/newsroom/press-releases/senator-warren-and-representative-nadler-reintroduce-the-consumer-bankruptcy-reform-act)