You REALLY Want To Help The Middle Class, Mr. Obama, Fight To Change Bankruptcy Laws
In his State of the Union address, President Obama is expected to focus on the middle class and how to improve its prospects. Alas, it’s doubtful that he will suggest what would really improve the prospects of middle class Americans, or keep them from falling still further into more difficult economic straits.
Here’s what has to happen to give real help the middle class. First, as I’ve noted before, the crippling Middle Class Tax, a.k.a the Payroll Tax, should be restructured. Everyone earning more than $113,000 a year and all unearned income (dividends, et. al.) should pay this tax so those making less than $113,000 a year can pay less. In other words, make the Payroll Tax a flat tax on all income, and expand this tax’s base so everyone paying this tax can pay a rate lower than what middle class Americans now pay.
There something else that would work even better to keep more middle class Americans middle class — restructuring bankruptcy laws that currently make it far too difficult and often virtually impossible to get out from under a debt load, much of this debt generated by legal usury.
Here’s the big picture story on debt. Political tyranny was the main 20th century evil. Debt tyranny is the great and growing evil of the present century. Banks and other lenders have gamed or bought elected officials and the courts in ways that favor them in outrageous ways vis-a-vis borrowers — a vast number of these borrowers being middle class people on the way into personal peonage in consequence.
Many things have to be changed to redress the current lender-borrower imbalance. Here’s where to start — what Mr. Obama should really focus on in his State of the Union speech if he wants to protect the middle class. Bankruptcy rules on student loans and other debt obligations, and usury laws, must be brought back to where they were before banks took total control of our politics and legal system.
Before 1976 student loans could be discharged in bankruptcy court. Then Congress changed the law and now they can not be discharged there. You want a college trained middle class in the future? The pre-1976 rules have to be brought back.
In 2005 a new bankruptcy law passed by a Bush-era congress made it much harder for middle class borrowers of all stripes to escape debt they could no longer afford. The pre-2005 version of bankruptcy law has to be brought back as well.
Federal usury laws were thrown out for good reason in the last 1970s because inflation was then rampant and lenders wouldn’t lend at rates lower than inflation rates. That kind of inflation no longer exists. Federal usury rules should therefore be put back into place. (Usury rules for state chartered lenders are a separate issue)
Mr. Obama’s prescription for helping the middle class will likely involve plans to grow the economy and create jobs faster. That’s nice. Except that all the bennies from such growth will likely go to the top 1 or 2 percent as has been the case in recent decades. And more jobs will likely just allow more Americans to service their existing debts to lenders more easily.
Along with economic growth and more jobs, Mr. Obama, restructure the Payroll Tax and bankruptcy laws. That’s a REAL pro-middle class agenda.
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“Before 1976 student loans could be discharged in bankruptcy court. Then Congress changed the law and now they can not be discharged there.”
They can be discharged there and it is not as difficult as some claim.
http://wiki.answers.com/Q/How_do_you_bankrupt_your_student_loans
Most would agree, that going to university, taking on loans, graduating and then declaring bankruptcy to discharge loans is playing the system. It seems prudent that loans require some hardship proof to discharge them.
Hi KP,
The idea that declaring bankruptcy is “playing the system” is plain silly. Anyone who treats doing so “playfully” is an imbecile. Your credit is trashed. You can’t buy property. You can’t even rent most places because landlords check a prospective tenant’s credit history. A lot of jobs become off limits because prospective employers check credit histories, too, these days. The credit system makes it very unpleasant for those who don’t pay up.
But if that is the only way to start re-living one’s financial life, why have we made it so hard to go this route? Hasn’t America always been a land where you could start all over? It’s a pleasant national myth that folks came here primarily to enjoy religious freedom. Most came to escape places where debt of some kind kept them from ever realizing their full potential.
Present rules on student loan debt are trading our nation’s future for some lenders’ present bottom lines. Aside from everything else, this ain’t a good way to run a railroad.
MS, tell that to my cousin who filed three times and took out credit cards under his dead father’s name. Is he the only one that uses the laws to advantage themselves, ask any politician.
Yes, Virginia there are people that game the system.
Yes, indeed, dduck. There are people who game the system, and egregiously, too. They are the same people who have done so much to create the present system. They are called credit-card issuing bankers.
I have to be honest here. I am really very tired of the victims being turned into the perps. No, we don’t have the bankruptcy laws we have today because decent honest lenders were losing so much money to evil sneaky borrowers. The system is a product of greed buying influence.
Come on, guys. Surely you know this is truly the case. Surely…
It feels like you took my comment and are focusing on something differnt than I was. From the article I believe you are in favor of easier bankruptcy and discharge of student loans.
My point was that it isn’t as difficult to declare BK and discharge loans as many would have us believe. We seem to agree; it is still a legitimate avenue for those who need to go that route. I am in favor of that as well. Shoulder to Shoulder.
You said: “The idea that declaring bankruptcy is “playing the system” is plain silly. Anyone who treats doing so “playfully” is an imbecile. Your credit is trashed. You can’t buy property.”
You and I agree. That doesn’t change anything I said. If an imbecile wants to game the system we have laws/rules in place to stop them.
You said “Present rules on student loan debt are trading our nation’s future for some lenders’ present bottom lines.”
Presently, right now, today, if you can show hardship you can discharge loans. If you cannot, them a student should pay his/her loans. I went through this system and my adult children are in it now post graduation. I understand it reasonably well after over thirty years.
“There are people who game the system, and egregiously, too. They are the same people who have done so much to create the present system. They are called credit-card issuing bankers.”
I completely agree! I think we agree on almost all you write about.
I am furious that cost of higher education rises at 6% a year. I have had a university student in my house for seven straight years (two children) and each year tuition is 6% greater than the year before. After seven years I know the consequences.
Our focus (as you say) should be on universities and tuition increases and well as predatory lending that the federal government continues to support by increasing loan amounts each year. California finally put a stop to the madness last year when Governor Jerry Brown (D) refused to raise Cal Grants. It cost my family another 10k in student loans to keep my daughter in her school her senior year. But he did the right thing.
My point; legitimate hardship = discharged loans. We can have the discussion that education should be free and I would be in favor of that. As you know, we are heading that way now; soon.
MS, you make my point. The bankers AND my cousin both game the system and that is the reason laws and regulations are created from tighter bankruptcy laws to Glass-Stegal. Trouble is they are created, distorted and sometimes repealed by politicians.