Paying up

An important piece of business Congress left unfinished when it adjourned last fall was bankruptcy reform. Congress is back, so is reform, and just in time. Americans, including Mainers, continue to spend like there’s no tomorrow.

A record 1.4 million Americans — individuals, not businesses — filed for bankruptcy protection in 1998, the fourth consecutive year of increase. In Maine, there were more than 4,500 filings, a three-fold increase since 1990. An odd way to celebrate an economic boom.

The purpose of bankruptcy law, of course, has always been to protect the homes, tools of the trade and essential transportation of those who have fallen upon hard times — catastrophic illness, accident, layoff. It was never intended to be what it has become, a financial planning tool for shirkers. That shirking costs the bill-paying set dearly; an estimated $50 billion in uncollectable debt was passed on to consumers last year.

An earlier version of this bipartisan reform measure made it through the House last fall with more than 300 votes before the clock ran out in the Senate. Although not perfect, it’s a good bill that better protects those deserving of protection, such as those owed alimony and child support. It forces more filers into Chapter 13 bankruptcy, where debts are put on a repayment schedule, and away from Chapter 7, where debts are forgiven (and eventually passed on to other consumers).

Under current law, child support and alimony payments rank seventh on the priority list for repayment. The reform measure puts them first. It does not allow those payments to be evaded or delayed while a bankruptcy case is pending and it makes meeting those obligations a condition of repayment plans. These provisions have the support of numerous organizations who deal with delinquent parents, including the National Child Support Enforcement Association and the Nation District Attorneys Association.

In case millions of filings and billions in passed-on debt and ducked support payments aren’t reasons enough for reform, Congress should consider an unintended and until recently unnoticed consequence of lax bankruptcy law — the shocking rise of businesses that prey upon those who have been allowed to walk away from debt.

Those who are in Chapter 7, or who have emerged from it, invariably learn the hard way that, when a loan is needed, conventional lenders won’t do business with them. There is a new breed of legal loan sharks who will: storefront operations are springing up in city after city that will make a cash advance with next week’s paycheck or the car title as collateral. Those who make the payments do so at annual interest rates exceeding 200 percent. Congress, then, has more than enough reasons to pass these reforms. It can do it for the kids. It can do it for the responsible consumers. It can do it for the deadbeats.