The NY Times has another poorly-reasoned and sloppy editorial this morning criticizing the bankruptcy reform legislation, this time using Hurricane Katrina as the hook. The basic thrust is that in some unspecified way, the events of Hurricane Katrina should cause Congress to rethink the bankruptcy reform legislation.
And I do mean "unspecified"--the Editorial does not provide a single scintilla of evidence that the bankruptcy reform legislation would prevent any person affected by the hurricane from getting bankruptcy relief. None. The legislation simply requires high-income filers who can repay some or all of their debts to do so as a condition for filing bankruptcy. If a person has lost his job and income because of the hurricane, then the legislation permits that person to file bankruptcy just like under the current rules. The means-testing provisions of the legislation specifically allow for "special circumstances" that mean that those provisions of the legislation should not apply to a given bankruptcy filer--clearly the destruction of a person's house and job easily fit within those provisions of the legislation. Every relevant provision of which I am aware affords bankruptcy judges discretion to take into account circumstances that might arise in cases occasioned by Katrina. Although some potential problems have been identified (such as the question of where a person can file bankruptcy) these problems are not the result of the reform legislation at all. The NY Times makes no mention of any of this, just wrapping its charges in hoary and misleading charges of special interest politics and vague accusations.
Omitted from the Times's snarky editorial is the fact that Congressman Sensenbrenner, which the editorial singles out for special criticism, explained specifically why he thinks Katrina is a red herring and why the reform legislation is perfectly capable of dealing with the Katrina situation:
On the House side, Sensenbrenner has disputed the need for changes. He says lawmakers who opposed the new law and lost that fight "ought to get over it."
Backers of the bankruptcy law say it will cut down on abuse of the system by people who can afford to repay debts.
The American Bankers Association, a major backer of the law, opposes changing it for disaster victims. "We feel like the bill is flexible enough to take care of Katrina survivors," the group's spokeswoman, Laura Fisher, said Friday.
Sensenbrenner makes the same argument. He says the poorest bankruptcy filers, people who fall below the median income in their state, can wipe out their debts the same way they did before.
"For someone who is genuinely poor and down and out and doesn't have the ability to repay their debts, there is no change at all," Sensenbrenner said.
For people above the median income, the new law makes it harder to avoid debt repayment under bankruptcy. But Sensenbrenner and the bankers' association say a "special circumstance" clause in the law allows disaster victims to escape the means test, still file for bankruptcy and achieve a clean slate on their debts.
The Times misleadingly quotes Sensenbrenner saying that those who opposed the legislation should just "get over it" (the Times protests, "Sorry, Jim. We can't get over it."), but misleadingly fails to note that Sensenbrenner had quite a reasonable explanation for why the Katrina issue was a red-herring. And unlike the Times, he provides specifics to support his position.
Rather than supplying specifics, the Times seems to believe that it is enough to simply state that "most" bankruptcy filers file because of unanticipated financial hardship. Even if true, that hardly proves the point that we should continue to turn a blind eye to those who are cheating the system. "Most" people pay their taxes--does that mean we should abolish the IRS? "Most" people don't commit insurance or Medicare fraud--does that mean we shouldn't prosecute those crimes? Of course most of those who file bankruptcy are the unfortunate victims of financial mishap, which is precisely why it is crucial to preserve the fresh start for those who need it, which the reform legislation does. But that is no reason to turn a blind eye toward fraud and abuse by those who are cheating the system. Even if only 10% of bankruptcy filers are engaged in fraud (the FBI's estimate) then that means about 150,000 bankruptcy filers are committing fraud every year. I really wish that I could share the NY Times's uninformed optimism that the "honor system" for dealing with bankruptcy fraud and abuse could work. If the honor system actually worked, then we could get rid of the IRS, insurance fraud laws, etc. But experience has shown otherwise.
Nor does the Times explain how exactly the victims of Hurricane Katrina would be helped by having to pay more for goods, services, and credit, just to preserve the loopholes for opportunism and fraud under the current system. How exactly does it harm victims of Hurricane Katrina that the legislation increases the penalty for filing bankruptcy using a false or stolen Social Security Number? Or for permitting recidivists to file only once every eight years rather than every six years? Or for divorced women who no longer need to fear being sandbagged and thereby having property settlements discharged in bankruptcy? From making it more difficult for O.J. Simpson to stash money in a Florida mansion to evade his creditors? (For more, see my discussion here and here).
The NY Times can spin yarns all day about the "special interests" behind the bill (conveniently ignoring the special interests that oppose the legislation, of course) or attack Congressman Sensenbrenner's investment portfolio. None of this changes the fact that the Times has not provided a single shred of evidence to support the charge that Hurrican Katrina has anything to do with the bankruptcy reform legislation. The fact is that prudent, balanced bankruptcy laws should preserve the fresh start for those who need relief while cracking down on fraud and abuse by those who want to stick the rest of us with the bill. The NY Times has provided no evidence that Hurricane Katrina has upset this basic balance that is struck by the reform legislation.
Half-truths, ad hominem attacks, and unsupported accusations--if this is the best that the Times can come up with then maybe they really do need to just get over it.