New Bankruptcy Laws Will Hurt Middle Class

President Bush recently signed into law a bill that will radically change bankruptcy laws. Commentator Lester Kenyatta Spence predicts that banks, credit card companies and other lenders will benefit, while America's middle class will suffer. Spence is an assistant professor of political science and Afro-American Studies at Washington University in St. Louis and a columnist for AOL Black Voices.

ED GORDON, host:

Ahead of the new bankruptcy law that will go into effect in October, bankruptcy attorneys and their clients are rushing to file under the current, more lenient regulation, according to court officials nationwide. While many who file are well off, commentator Lester Kenyatta Spence says the new bankruptcy laws mainly target the middle class, and unfairly so.

LESTER KENYATTA SPENCE:

Recently, President Bush signed into law a bill that will radically change bankruptcy laws. While banks, credit card companies and other lenders will benefit, America's citizens will suffer. The new laws will make it much harder for those saddled with debt to get out from under that burden. In trying to take away the sting from the bill, some Democrats proposed a variety of amendments that would alleviate the weight of debt. One would have protected individuals who were bankrupted as a result of identity theft. Another would have exempted those whose debt was caused by serious medical problems.

These amendments, as well as several others, were all shot down by Republicans, and even though the Republicans have been castigated as the rich man's party, particularly among black people, don't be fooled here. When the bill got to the Senate, a number of Democratic senators voted with the Republicans, including Senator Ben Nelson from Nebraska and Senators Tom Carper and Joe Biden from Delaware, home to many of the credit companies in line to benefit.

Now there are a couple of circumstances in which I could grudgingly understand why this bill passed. If the profits of the banking industry were on the wane and some of that loss was due to permissive bankruptcy laws, I could understand. I wouldn't agree, but I could at least see why some might thing harder laws were warranted. But take MBNA, a credit card company, as an example. According to morningstar.com, an investment Web site, MBNA has seen its earnings-to-share ratio double over the past five years, and their net after-tax income increase 560 percent over the last 10 years. The profits of MBNA appear at least on the surface to be the rule rather than the exception. These companies aren't losing money, they're making it hand over fist.

I could also understand and maybe even support the law if they treated corporate bankruptcies and individual bankruptcies the same. Chapter 11 bankruptcies are filed largely by corporations and cost creditors billions of dollars. However, these bankruptcies are not covered by the bill. Wealthy Americans are given a pass, too, by being allowed to place some of their assets in a bankrupt-proof trust.

We already know that blacks and Latinos are much less likely to accumulate wealth than their white counterparts. We also know that black and Latino neighborhoods across the country are literally pockmarked with payday lending stores. And I can't begin to count the pieces of mail I used to receive offering to pay off all my debt if I just refinanced my home. The bankruptcy laws are going to hit black and Latino citizens hard, no doubt about it. But even further, it is hard to imagine any type of silver lining as far as middle-class citizens as a whole are concerned. The phrase `bad legislation' is an understatement here, and legislators should be ashamed.

GORDON: Lester Kenyatta Spence is an assistant professor of political science and Afro-American studies at Washington University in St. Louis and a columnist for AOL BlackVoices.

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