Was the Credit Industry Sincere in its Lobbying for Bankruptcy Reform?

02 Oct Was the Credit Industry Sincere in its Lobbying for Bankruptcy Reform?

It is well-established fact that MBNA was among the top contributors to BAPCPA, and was one of the primary engines, if not the primary engine, behind its passage. The problem, decried MBNA and its partners in the credit industry, is that Debtors are filing bankruptcy in bad faith, and that there are not sufficient safeguards built into the bankruptcy system to prevent this. Of course, there are many reasons to question the claims of MBNA.

What is shocking is data brought to light by University of Iowa law professor Katherine Porter in her article, “Bankruptcy Profits: The Credit Industry’s Business Model for Post-bankruptcy Lending”.

According to Professor Porter, all of the following is true:

  • 96.1 Percent of Debtors receive credit card solicitations within one year of filing for bankruptcy;
  • These same Debtors received an average of 14 credit solicitations per month, while the average American household receives only SIX credit solicitations per month;
  • 88 percent of these Debtors report that credit soliciations mentioned their bankruptcy filing within the solication materials, showing that the credit industry was indeed aware of the status of the group they were soliciting.

The reason, surmises Professor Porter, that bankruptcy filers are so aggressively courted by the credit industry is that those who have recently received a bankruptcy discharge cannot obtain another bankruptcy discharge for a period of at least four (4) years. [Note: this does not necessarily mean that you cannot file for a chapter 13 bankruptcy immediately following the receipt of a chapter 7 discharge.] Furthermore, lenders find customers who pay late and who run up balances to be far more profitable than those customers who do not carry a balance, pay late, etc.

Perhaps the abuse that the Bankruptcy Abuse Prevention Consumer Protection Act should have been designed to curb is the abuse of the credit industry as opposed to the supposed abuse by debtors. For more on this topic, please read Andrew Leonard’s decent analysis at Salon.com.

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