According to a recent article in Businessweek by Michael Mandel, household debt in the U.S., and around the world, has exploded in the last seven years to almost 14 trillion dollars; yes, that’s trillion with a “t”. By comparison, had household debt continued its pace of the 90’s, the total would “only” be around 11 trillion dollars.
After all the talk about Congress passing laws to restructure mortgages in hopes of averting an all out collapse of the housing market, many policy makers seem to have ignored the proverbial “elephant in the room”…consumers have too much debt.
It’s tragically ironic that the proponents of BAPCPA, the 2005 amendments to the Bankruptcy Code, are getting exactly the opposite of what they claimed BAPCPA would deliver. Senators and Congressmen boldly stated the new bankruptcy laws would reduce the amount of Chapter 7 bankruptcies and force more people to file Chapter 13 debtor’s court. In fact, the opposite has happened. Before BAPCPA, two-thirds of my cases were Chapter 13 cases, while one-third were Chapter 7 cases. Since BAPCPA, my caseload has “flipped”; two-thirds of my filings are Chapter 7 cases, while one-third are Chapter 13 cases.
1. Contrary to the grandstanding rhetoric of many lawmakers, BAPCPA does not keep people from filing bankruptcy, other than it is much more expensive to do so. Filing for bankruptcy has increased from 50% to 100%, depending on the geographic region and type of case.
2. Chapter 13 debtor’s court, the “darling” of many BAPCPA proponents, is actually less helpful for debtors who want to pay back their debts. Many of my clients who could have filed Chapter 13 debtor’s court under pre-BAPCPA, and paid back all their debts, have instead been forced to file Chapter 7 bankruptcy, walking away from homes, cars and unsecured debts. There is little to no incentive for debtors to file Chapter 13 debtor’s court under BAPCPA.
3. Going back to where we started, U.S. consumers have too much debt. The consumer lending industry has hawked it’s products with Madison Avenue savvy and David Copperfield slight-of-hand. Wall Street thought mathematical models and securization wizardry would make risk obsolete. They were wrong.
Americans have too much debt. Who’s to blame…greedy corporations, foolish individuals or oblivious lawmakers? Democrats will blame evil corporations. Republicans will blame individual consumers who simply made poor decisions. Both will blame lawmakers from the other party. I believe there’s plenty of blame to go around. Corporations have sold their soul for quarterly profits and share price. The American consumer has sold his soul for McMansions, SUVs, and entertainment at any cost. Lawmakers on both sides have “played the harlot” to special interst groups and lobbyists.
And now, the price must be paid. The dollar, once strong, is being crushed. Wall Street is at the mercy of the Fed. American consumers are facing 14 trillion dollars of debt. It’s going to hurt and hurt for a while. That’s the bad news. The good news is this: in my humble opinion, this is still the greatest country on earth with the best government, financial system, and human spirit of any nation on earth. The ship can be righted, but it will take change. It’s time for self-discipline. It’s time for unselfishness. It’s time for conviction. I’d better stop writing now, because it’s time I start doing those things myself.