Last week Professor Todd Zywicki claimed on national television that S.256 would add protections for people who were the victims of identity theft (“This is a bill that is about people actually stealing social security numbers and then using it to get people to file bankruptcy”). Someone should send him a copy of the bill and tell him to read it.

The only reference in the bill to identity theft (Section 234) permits the bankruptcy court to refrain from disclosing certain information if it is likely to create an undue risk of identity theft. It says nothing about protecting American families whose bankruptcy filings are the result of identity theft.

If readers know of stories – from the press or personal experience – of identity theft victims being forced to file for bankruptcy, send us an email. We’d like to hear about them.

Beginning next month, Bank of America will charge its customers an interest rate of 29.49% if they miss two payments or go over the credit line twice in a twelve month period and it will raise the cash advance interest rate to 21.49%. The bottom line: Bank of American customers pay some of the highest rates and fees in the country.

On March 1, Bank of America announced to those same customers that it had lost personal financial data for over one million consumers. That’s one million people who, through no fault of their own, are now extremely vulnerable to the 21st century threat of identity theft. And the threat is genuine. The Federal Trade Commission estimates that 10 million people are victimized by identity theft each year. Identity theft costs the US economy billions of dollars annually.

But by all indications, Bank of America and other supporters of S.256 simply don’t care. When Senator Bill Nelson (D-FL) introduced an amendment “to exempt debtors from means testing if their financial problems were caused by identity theft,” Bank of America’s lobbyists ensured that it didn’t pass.

Search the full text of S.256 for the phrase “identity theft.” You’ll find one reference in Section 234, a reference that has nothing to do with protecting American families from the dangers of identity theft.

Nobody – Democrats, Republicans or otherwise – denies that the bankruptcy code could be improved. At the very least, it should be updated to reflect new financial realities which have emerged in the last 25 years. But with amendment after amendment, this bill’s supporters rejected common sense improvements and preserved a bill that eliminates protections so as to maximize revenues.

If you’ve been trying to figure out why so many Democratic lawmakers support the bankruptcy bill, you’re not alone. Alert reader FT was so confused he wrote his Senator, Ken Salazar (D-CO), and asked the Senator why he let the bill glide through the Senate.

Here’s the revealing portion of Salazar’s response:

I voted for this legislation because I believe that people who have the ability pay back some of their debts should be prevented from discharging those debts completely in bankruptcy, as they are able to do under current law.

In fact, under current law, judges do require anyone with the ability to pay back their debts to do so. [11 U.S.C. 707(b)] The bill merely eliminates a judge’s ability to evaluate each filer individually, and substitutes an inflexible “means test” which assumes everyone went broke for the same reason: a lack of personal responsibility.

Salazar’s fundamental misunderstanding of the bill shows how thoroughly the credit card industry has obscured the real issues. For example:

1) Is bankruptcy abuse a “crisis?”

No. The non-partisan American Bankruptcy Institute estimates that at most 3 percent of filers—and almost certainly less—are able to discharge debts they could actually pay. In other words, the system already does a good job of preventing abuse. The credit card companies are the real abusers; their predatory lending practices pumped up their profits even as personal bankruptcies skyrocketed.

2) Does this bill prevent abuse of the system?

No. The infamous “millionaire’s loopholes”—which allow rich filers to hide their wealth by buying mansions or special trust funds—were carefully preserved. At the same time, the bill raises the price of filing even for the lowest income earners and eliminates a judge’s discretion to discharge debts if people go bankrupt due to medical emergencies, job loss, or divorce.

3) Is the heart of the bill the new “means test?”

No. The bill is about 500 pages long; only 6 pages are about the means test. The remainder of the bill is an unseemly combination of gifts to the rich and attacks on working families.

Let us know if you hear any other interesting justifications from your representatives.