The Safety Net, Unraveled…

Congress is calling an emergency session for next Tuesday to do something about the aftermath of Katrina. Representatives Conyers, Jackson Lee and Nadler have an idea: let’s take another look at the bankruptcy legislation. It seems that in the haste to adopt the credit industry version of the bill, some amendments to cut a little break for the victims of natural disasters were defeated. Now everyone is scurrying to re-read the those amendments to see just how hard this new bankruptcy law will fall on families and small businesses thrown into financial chaos in the wake of Katrina.

Kudos to these three for saying they will introduce amendments to the bankruptcy amendments set to go into effect on October 17, 2005. But the whole episode is a reminder of the central framing problem. The credit industry and its public relations machinery described bankruptcy like welfare — full of abuses and in need of serious tightening. The people who work in the system every day — the judges, the lawyers, the clerks, the academics — described the bankruptcy system as a safety net, used by people who had been hit hard by medical problems, job losses, family break ups and even (sometimes) natural disasters. The data backed up the second group, but the money backed up the first group. And now the victims of Katrina will face one more kick in the teeth: About the time the power is scheduled to go back on in New Orleans, a harsh new bankruptcy law will swing into effect that will treat them all like abusers. Bankruptcy is a safety net for the middle class. At the moment when people and small businesses may need it more than ever, Congress is ripping new holes — all in the name of reform. If Congress really wants to help, delay the enactment date by a year and give families everywhere a chance to pull themselves back to financial safety.

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