Americans are going broke in record numbers. In 2005 Congress overhauled the bankruptcy system to stem the tide of filings. What's behind the boom in going bust? See this special report co-produced by Marketplace and American RadioWorks.
President Bush signed into law a tough new bankruptcy bill a year ago today. Creditors were the legislation's biggest supporters. Their goal was to squeeze more money from people in bankruptcy, a boon to their bottom line. Chris Farrell reports doubts are growing that creditors will profit from the new law.
There's a skyscraper in downtown Memphis locals call the bankruptcy building. Inside is US Trustee George Stevenson, a federal official charged with enforcing the bankruptcy laws. He's going over the terms of a bankruptcy filing with a father and his lawyer.
GEORGE STEVENSON: Looks like you've got a pretty substantial child support obligation.
. . .Lotta money . . .getting that child support paid is important though isn't it?
Stevenson handles as many as 200 cases like this during a typical day. Americans are struggling to keep pace in a changing economy. Debt burdens have never been higher, especially among low incomes families. A job loss here, a medical bill there, and all of a sudden those debt payments are too much. Personal bankruptcies have soared in the past decade. Credit card companies were fed up. Elizabeth Warren teaches law at Harvard University.
ELIZABETH WARREN: They have given enormous dollars in Washington over the past 10 years. And the bankruptcy bill was the first big payoff.
But did it really pay off for the credit card companies? They got a law designed to drive more people into a type of bankruptcy that would force them to pay back more money to lenders. But other interests wanted their own piece of the legislative pie. Auto lenders lobbied successfully. The bill's backers gave child support payments and alimony bigger slices in order to round up more votes in Congress.
GEORGE STEVENSON: What's left over is what goes to the unsecured creditors -- the doctor bills and the charge cards. If all these other pieceS of the pie are getting bigger, then some pieces are getting smaller.
ED YINGLING: The truth is the credit card companies are always and still are at the bottom of the pecking order in payment.
Ed Yingling is president of the American Bankers Association.
ED YINGLING: And it may well be that in a number of cases the end result of this law is that the unsecured creditors, including credit card companies, will get less money.
To make matters worse for creditors, the new law includes a means test. People making less than the median income in their state can't be forced into the repayment plans credit card companies favored. It turns out that the majority of people filing for bankruptcy live below that income level. So, a year after President Bush signed the law, the bankruptcy bill doesn't look like it's going to turn out the way its supporters had hoped.
— Chris Farrell