Category: Legal, Laws, and Regs

Recovered from the Wayback Machine.

New bankruptcy laws went into effect in the US this week. For the best detailed description of these law changes, check this NOLO article.

The new law makes little sense in relation to today’s economy. Surveys of those filing for bankruptcy find they do so because of medical bills, loss of jobs, and divorce–only 3% could be considered as abusive filings. Unlike the banking industry’s assuptions given in a press release on the matter, I know of no one who filed for bankruptcy because they lived expensively and then decided to just bug off from the responsibility.

I don’t know what I consider of the new law to be the most flawed. There is the issue of ‘credit counseling’, whereby new industry will now spring up to provide spurious ‘economic advice’ and charge $75.00 or more to people who have little or no money. I find the concept of forcing people into credit counseling from a Congress that has managed to create a history making deficit to be rather ironic myself.

Then there’s the valuation of property if you do file Chapter 7. Each person filing is given so much in exemptions of what they make keep, all of which changes from state to state. In Missouri, you can keep about a 1000.00 dollars of exempt personal property. Before the change in law, items you kept were valued at what their sale would bring, using eBay or other auction or yard sale. Now, each item has to be valued at retail, in consideration of age and condition. Since the trustees would not get this amount selling the items, the only purpose for this change in the law is punitive–forcing those in bankruptcy to literally lose everything: from a 3 year old television, to a 10 year old bed, to a 13 year old frying pan. Even a pet has to be valued at it’s ‘retail’ value.

No, I think my favorite flaw is that those under Chapter 13 bankruptcy have to follow IRS guidelines for cost of living. These are set the same for all 48 states (Alaska and Hawaii have their own), which means whatever you pay for food in St. Louis is the same amount you can spend for food in San Francisco and so on. These are so restrictive, there’s almost a guarantee that Chapter 13 filers will fail before the five years is up.

This is ultimately the legacy of the new law: it won’t work. Unfortunately, though, while it won’t work, people already harmed by circumstance will be further harmed by law. According to Judge David Houson in Mississippi:

Congress changed the “gem of our bankruptcy system” so much that there’ll be “a subculture of people that will owe a lot of money and just move away,” Houston said in a recent interview.

The new law imposes restrictions aimed at preventing people from using the bankruptcy court to dodge debts they could actually afford to pay.

The “gem” in the current system, Houston said, is the Chapter 13 bankruptcy provision, which lets people with large debts reorganize their finances with court oversight to repay some or all the money over an extended period to creditors.

While Congress intended to steer more debtors to take the Chapter 13 route, Houston said the reforms could have the opposite effect – meaning more debtors will run away from creditors and they won’t get the money due them.

The law imposes disincentives for people to repay debts over time in a court-monitored process to ensure creditors get their money, he said.

“That’s one of the sad parts of the legislation. It’s going to (hurt) the Chapter 13 program,” Houston said.

Even before it went into practice, caveats had to be added to waive credit counseling for those whose homes and all livelihood were wiped out by Katrina. As for the provision that people filing bankruptcy have to do so from their local community, this is problematic when you consider that many new victims no longer have a local community.

In the meantime, to compensate for the surge of bankruptcies this new law has generated, credit card companies are raising their interest rates to 29 percent, for those already struggling with card costs. When one considers that wages have been virtually flat for the last several years while health insurance costs rise an average of 11 to 13% a year and fuel costs have jumped 200%, this interest increase will most likely force even more into bankruptcy next year–a cause and effect these companies seem incapable of understanding.

I used to think that those in favor of bankruptcy reform were being greedy and rapacious. Lately, though, I think that the laws reflect a growing mediocrity in the economic and financial community. In other words: those pushing for change aren’t thinking through the consequences; they’re just looking for quick ways to increase today’s bottom line, even at the risk of tomorrow’s financial stability. The last few years have shown a number of optimistic predictions from these same economists–ones that don’t match what we’re seeing and experiencing for ourselves. They remind me of weather forecasters who never look out the window and persist in predicting a sunny day even while it’s pouring rain outside. In the case of bankruptcy law, though, the credit card companies and banks are seeing a quick way to keep money flowing from people who literally have none.

There is some small justice, though, a bit of black humor associated with the new bankruptcy law. MBNA, the corporation most active behind the new law, has seen a significant decrease in profits this year. You might think it’s because of the increased bankruptcy filings, but no, that’s not it. According to Consumer Affairs:

Of potentially greater long-term significant, more and more consumers — perhaps stung by exorbitant increases in their interest rates — are paying off their MBNA credit card debts faster than expected.

Like other banks, MBNA relies on the interest, service fees and late charges it gets from its credit cards.
…
Perhaps the passage of S.256, the Bankruptcy Reform and Consumer Protection Act, which makes it harder to resolve credit debt through bankruptcy, has scared debtors into taking care of business faster. The financial giant spent millions of dollars priming the political pump to ensure it would be able to wring the last drop of blood from its credit card customers.
…
The moral of this story?

Paying off your credit card debt not only cleans up your balance sheet and gives you extra cash to spend and invest, it also puts a chink in the armor of the companies who’ve steadily tightened the noose around consumers’ necks.

The Supreme Court issued four significant rulings today, before taking their summer break.

The first, which has been getting most of the attention, is the Grokster ruling. Though I’m not quite as complacent as Don Park about the ruling, I don’t believe it is, in actuality, the death of openness and innovation. After all, we’re still capable of generating and consuming RSS feeds; what other technology could we possibly need or want?

From the BBC report it would seem that the originators of a technology will be liable primarily if they promote the technology as a way of infringing on copyright. How this is to be interpreted is going to be a challenge, and will most likely bog down many a court system, but I don’t think anyone is really and truly surprised the courts made this decision–even with the reliance on the old Sony Betamax ruling used by Grokster in defense. From my admittedly limited knowledge of the Supreme Court, their task seems less a job of defining black and white, as much as it is delimiting various shades of gray; sometimes the difference between the shades of gray is hard for the untrained eye to detect.

On the one hand you had the old betamax technology and Sony not being held liable for copyright infringement, as Sony shows that the majority of use of the technology is for legal purposes. On the other hand, you have Grokster, where most users spend much of their time thumbing their noses at Hollywood and bragging about how they got such and such song, movie, and/or television show for free.

Regardless, this isn’t the death of P2P; this isn’t the end to innovation. You sell us all too short when you say that.

The second ruling was on the use of cable for broadband internet access. In this, the Court sided with the cable companies and the FCC and said they do not have to allow competitors to use their wires. This is a disappointment, as opening the wires would open up competition, and hopefully drive down prices.

However, David Weinberger points to Susan Crawford’s analysis of this ruling, where she says that the ruling does give the FCC control over most of the bits that flow on the Net:

This is very very big. This means that even though information services like IM and email don’t have to pay tariffs or interconnect with others, they may (potentially) have to pay into the universal service fund, be subject to CALEA, provide enhanced 911 services, provide access to the disabled, and be subject to general consumer protection rules — all the subjects of the FCC’s IP-enabled services NPRM. I’ve blogged about this a good deal, and now it’s coming true: the FCC is now squarely in charge of all internet-protocol enabled services.

Susan’s reasoning is that because net access now falls under an “information service” it falls under the FCC jurisdiction and, …the FCC can make rules about these information services under its broad “ancillary jurisdiction”.. Does anyone else see this?

From the publications I’ve read on this, this isn’t seen as an issue. What is, is the power given to the cable companies to control services such as VoIP. More, I’m concerned about what happens if DSL and cable work together to limit wireless access. For instance, the entire St. Louis downtown is wired for free use. Could this eventually be limited as somehow anti-competitive and therefore ‘harmful to innovation”, as the FCC would define it?

All I can say is: shop your beliefs. Not happy with this ruling and cable? Turn it off, and let them know why you’re turning it off. You can still download Stargate through BitTorrent.

Though both these items are getting wide play in weblogging, it is actually the two other ruling that concern me the most, and both have to do with the Ten Commandments.

The Court, in two separate rulings, stated that posting the Ten Commandments in Kentucky was unconstitutional, but a display in Texas was not. Why the contradiction? The Court decided the latter was part of a historical and political display that de-emphasized the religious nature of the monument. According to Reuters:

In the Texas case, Rehnquist said for the majority that the state has treated the monuments on the capitol grounds as representing several strands in the state’s political and legal history.

Justice Stevens, in minority dissent, :

…argued it was an improper government endorsement of religion. “The monument is not a work of art and does not refer to any event in the history of the state,” Stevens wrote. “The message transmitted by Texas’ chosen display is quite plain: This state endorses the divine code of the Judeo-Christian God.”

This opened a big ole hole into where religion ends and government begins. Now, when a religious artifact can be displayed, and when not, is going to be difficult to determine.

I didn’t now this but Missouri had one of the same statues in our state’s Capitol grounds. No one had ever complained about it. But from the story, it would seem that most people just ignored it. It is, after all, not art.

The point is, this is a crack. And its a scary crack. Of the rulings, the Texas one is the one that will disturb my sleep tonight. What good is open file sharing if you can’t share the Quran? And what good is it to have cheap broadband, if all that flows through it is what the American Majority wants to read, see, and hear?

 

May 12, 2012: And today’s hot download is a video of a popular purple dinosaur, you know who, singing “Jesus loves me, this I know, cause the Bible tells me so…”