Despite lip service to the contary, the now infamous bankruptcy reforms of 2005 were bought and paid for by the credit card industry. Credit card companies used their substantial lobbying influence to make it harder for consumers to shed credit card bills in chapter 7 bankruptcy. Armed with the argument that those who could afford to pay back at least a portion of their debts were “unfairly” filing for bankruptcy, Washington Mutual, Bank of America Corp., JPMorgan Chase & Co. and Citigroup Inc. spent $25 million in 2004 and 2005 lobbying for a legislative agenda that included changes in bankruptcy laws to protect credit card profits, according to the Center for Responsive Politics, a non-partisan Washington group that tracks political donations.

Thanks to the means test,  it has become harder to simply walk away from credit card bills in bankruptcy. Unfortunately, those faced with financial hardship are often left with the undesirable choice to pay one type of debt at the expense of another. Therefore, despite what the credit card companies may say, the ability to pay a portion of debt is not necessarily evidence of solvency or an indicator that bankruptcy protection is not necessary. To the contrary, liberal bankruptcy laws can aid consumers in shedding more trivial debts (such as credit cards) to free up income for more important debts such as the mortgage or child support payments. Amazingly, for many consumers, payment of credit card bills will often be given higher priority than a mortgage.  As a result, many studies have linked the 2005 bankruptcy reforms to the unprecedented surge in foreclosures that has taken place over the last few years.

Similarily, an inability to shed credit card debt often makes it more difficult for men to meet their child support obligations. In her article Feminomics: Women and Bankruptcy, Elizabeth Warren, who chaired the Congressional oversight panel created to keep any eye on the banking bailouts, argues that the “new” bankruptcy laws have hurt families. Warren points out that for many women, the timely payment of domestic support obligations are crucial to survival. While domestic support obligations cannot be eliminated in bankruptcy, until 2005, the bankruptcy of those who owed the obligations actually helped women because the bankruptcy wiped out credit card debts and other obligations, while leaving domestic support obligations intact. This “cutting the fat” argument reflects the reality of financial hardship: those struggling with bills are often left with a choice of what to pay, the mortgage or the credit cards, the credit cards or the child support? Credit card companies have sophisticated collection mechanisms in place which can effectively harrass their “customers” into making timely payments. Citibank will call your Grandmother or employer once your five days late. Women rightfully owed child support simply don’t have the resources to compete. Most cannot afford to hire a lawyer to pursue past due child support with anywhere approaching the fervor of the credit card machine. The negative policy implications of the 2005 bankruptcy reforms were a concern of women’s rights organizations prior to the enacment of BAPCPA. According to Warren’s article, twenty-nine women’s groups — a diverse collection that included the Y.W.C.A., Hadassah, American Association of University Women, Church Women United, the NOW Legal Defense Fund and the Feminist Majority-publicly all opposed the 2005 bankruptcy legislation. Despite these and other protests, credit card companies were able to utilize disparate resources to change the bankruptcy laws for the worse. That influence has gained so much power that they are now able to drown out the voices of women who rely on child support to get by. Rarely does naked special interest produce worthwhile legislation.

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BAPCPA and the Boiling Pot by Steven Abelson