The House passed the bankruptcy bill, and now we’re down to the last minutes before President Bush signs it into law.

I should be depressed, but I’m not.

Eight years ago the proponents said it was a speeding train that could not be stopped. It was written by a lobbyist and shopped to a friendly Congressman. The financial services industry was giving big money, and there was no one in the way to stop it. We slowed it down. In the meantime, more than 12 million families got some relief when they were overwhelmed with debts following job losses, illnesses, or family break ups. With all the money on just one side in the debate, that’s pretty amazing. Even now, the bill that came from the Senate to the House had a few small adjustments that will help keep the door open for more families in desperate trouble. Not bad.

But the part that makes me feel better is that this time around we finally got the message out. Even after the horse race was over and it was clear the bill would pass, the press continued to write about the bankruptcy bill—and the stories weren’t pretty. The politicians who thought this would be a free vote discovered they were wrong. The middle class is beginning to rumble, and those rumbles will change things.

I’m also glad to see the old conservative-liberal dichotomy break down over bankruptcy. Both conservative and liberal bloggers exposed the rotten foundations of this bill, particularly the imperfect credit markets and the influence of money on politics. Could alliances shift over economic issues aimed at middle class families?

Finally, it ain’t over. The rumors are already all over Washington that a “technical amendments” bill will be passed during the 180 days before the bankruptcy law becomes effective. Several new stand-alone bankruptcy amendments are already in the hopper in the Senate and House, including a bill to sew up the millionaires’ loophole and a bill to stop corporate forum shopping in bankruptcy.

And it ain’t over in a bigger sense either. The point of this whole conversation is that bankruptcy isn’t an isolated issue. Bankruptcy is about job losses and health care finance; it is about credit card practices and predatory lending. Bankruptcy is just one way to measure the financial health of the middle class.

Josh has asked us to hang around, and particularly to continue talking about the shifting economic scene for the middle class. We think maybe there will be something to blog about even after the President has signed the bill.

The Economist has a fairly balanced treatment of American bankruptcy reform. It's worth reading.

Interesting passage:

Making bankruptcy more difficult has other, less attractive economic effects. Forced repayment plans can discourage people from working harder (or at all), since extra income simply goes to pay creditors. Making bankruptcy more unpleasant can also deter entrepreneurship; people starting businesses are often required to personally guarantee loans to their firm—and those without assets are often forced to rely on MasterCard and Visa for their seed capital.

Thanks Sameer.

Click here for a great, sortable database on yesterday's House vote on S.256.

Play around with it; if you come up with anything interesting or noteworthy, let us know.

Thanks to Techpolitics and reader KC.

The bankruptcy bill has passed the House 302 to 126. 73 Democrats voted for it. See the final vote roll here.

We expect President Bush to sign the bill tomorrow. It becomes law 180 days afterwards.

Guest Blogger: John Edwards

This morning Elizabeth Warren and her students invited me to say a few words about the bankruptcy reform bill. I'm grateful for the opportunity.

I'm now spending a lot of my time tackling the challenges of poverty, but I learned a lot about bankruptcy on the campaign trail last year. I saw how many good families end up broke and poor, and
how they need the safety net of a fair bankruptcy law if they're going to get back on their feet.

Like a lot of Democrats, I voted for a bankruptcy reform bill before. I can't say it more simply than this: I was wrong.

The bill is supposed to crack down on irresponsible borrowers. That's the right thing to do. The problem is that this bill imposes big burdens on families who did everything right but went broke just because they lost a job or lost their health insurance. And, even
more than the legislation I supported, this bill doesn't crack down on the real abusers.

Two million Americans go bankrupt every year, but you might never know it. People keep it to themselves. They're ashamed about what has happened to them. But they aren't alone-these families are our neighbors, our brothers, our friends. And I've listened to so
many people tell me how their life was on track until hardship hit. Thanks to Professor Warren, we now know that half of families going broke suffered illnesses or high medical costs.

These men and women want to pay their own way, but they can't. They can't because the hospital wants $135,000 to cover the heart operation and the plant just cut back their hours. They can't because the bank is about to foreclose on a predatory loan unless
they can pay $40,000 in 48 hours. They can't because they lost their job and now the electric company wants a few hundred dollars more just to turn on the lights.

This bill won't do anything to give struggling families more security. It will only make it harder for good and decent people to start over. The new means test that will mean hundreds of dollars in new legal fees for families who barely have money to put
food on the table.

If we want real reform, we shouldn't punish every hard-working family looking for another chance. But we should get serious about the biggest abuses.

In some states, a multimillionaire CEO can drive his company into the ground, declare bankruptcy, and still keep his mansion-tennis court, Jacuzzi, and all. The 2001 bill at least stopped that by capping the "homestead exemption" at $125,000. This bill will
allow many multimillionaires to protect their mansions if they plan ahead.

We've also seen the credit card companies and predatory lenders become more aggressive. Today, many Americans have seen their interest rates triple to 29% or higher-not because they missed a payment, but just because they lost a job and needed another loan. Many more Americans are losing their homes because lenders
have hidden points and fees in their loans. These companies are making billions by kicking people when they're down. This bill does nothing to stop them.

Unfortunately, we know what the outcome today is going to be. But that doesn't mean we should give up the fight-it means we have to fight harder. If we want to stop bankruptcies, we need to address their real causes, like rising health costs. We need to stop the
abuses by the credit card companies and the predatory lenders. We need to make sure all families, and especially those who are poor, can build their savings and assets so they have some security if something goes wrong. It won't be easy, but it can be done.
That's what being American is about--standing with people who are struggling to do right, and taking on anyone who tries to take advantage of them.

If you want to learn more about the work I'm doing, I hope you'll check out my webpage.

Check out this story about the impact of the bankruptcy bill on New York City, where salaries are dropping and prices are rising.

The House does the Senate's bidding. We're hearing from sources on the Hill that tomorrow's House debate on S.256 will be 30 minutes long. Apparently that's how long it takes for the House to pass on the fates of hundreds of thousands of hard-working, underserved American families.

Even if one somehow believes that the bill has merit, it clearly isn't so deserving that 30 minutes will suffice. The truth is that the bill is so bad that the House leadership wants to shove it down Americans' throats as rapidly and with as little debate as possible. It's fundamentally anti-democratic.

MoveOn gets involved. MoveOn.org just sent out the following action alert concerning the bankruptcy legislation:

Dear MoveOn member,

A great majority of the families that declared bankruptcy last year did so because of a major life crisis—huge medical bills or layoffs—that threw them into a spiral of debt. Now, after a multi-year, multi-million dollar lobbying effort by credit card companies, Congress is poised Wednesday to approve a sweeping change in bankruptcy law that would make it impossible for folks who have been dealt a bad hand to get a clean start. The law actually gives credit card companies new ways to seize your home and car if you get into financial trouble.

After accepting more than $620,000 from the lending industry to his various PACs, Republican Majority Leader Rep. Tom DeLay has scheduled the vote for Wednesday. The change in bankruptcy laws is a clear example of whose interests the Republicans in Congress are serving. But, in a betrayal of middle class families, as many as 90 Democrats may also vote the wrong way. Both Republicans and Democrats need to know that millions of us oppose this bonanza for corporate contributors that hurts families who are the victims of circumstances beyond their control.

We need to show Congress that we're watching. Today we're asking you to make a pledge to contribute for radio ads in the hometowns of representatives, both Republicans and Democrats, who vote wrong on this bill. We'll announce the amount of the pledge fund TOMORROW, before the vote on Wednesday, so that members of Congress know there are consequences for their votes.

Please click here to check out the script of the radio ad and make your pledge today.

By making a pledge now, we can show representatives who are on the fence that there are serious consequences for hurting Americans in order to help the nation's credit card companies. The radio ads will play an important deterrent to future corporate grabs—the text reveals how much the member of Congress received from the lending industry and how the bill hurts middle class families.

What's wrong with the bankruptcy legislation? A lot. More than 1.5 million families had to declare bankruptcy last year—half because of unexpected and extraordinary medical expenses. Millions more totter on the edge of bankruptcy. The large numbers of bankruptcies is a clear sign about the tenuous state of the economy—millions of Americans who work hard and play by the rules could be pushed at any time to financial ruin by job loss, business failure or major medical expenses. The pressure valve for these families has historically been bankruptcy but now Congress is making things tougher for these hard-working folks in order to secure billions in profits for creditors.

The legislation Congress will vote on is more than 500 pages long, all in highly technical language. But the Republican leadership and corporate lobbyists are in such a rush to push it through that the text is full of misspellings and repeated phrases. Representatives might not even be allowed to make amendments. But the overall thrust is pretty clear:

* Make families pay more to creditors, both in bankruptcy and after bankruptcy, so that instead of offering a clean start, a bankruptcy filing will leave families burdened by credit card debt, car loans, and continued payments to banks or to payday lenders.

* Make it more expensive to file for bankruptcy by driving up fees so that the people in the most trouble can't afford to file.

* Make it trickier to get through a bankruptcy so that more people will get pushed out of bankruptcy with no debt relief.

* Make it harder to repay debts by increasing the minimum payments in repayment plans.

* Preserve at all costs the millionaires' loopholes—special privileges that allow the super-rich to escape their debts by hiding their money in special exemptions and trusts.

Banking and credit card companies have fought for such legislation since 1997 but repeatedly failed to win congressional approval. Like pigs at the trough, the banks and credit card companies are feasting now that the Bush administration has a second term. This legislation has sailed through Congress this year with only a whiff of opposition.

That isn't surprising: According to the Center for Responsive Politics, MBNA, Credit Suisse First Boston, Bank of America and Wachovia were among the top contributors to Bush's two campaigns in 2000 and 2004, giving more than $300,000 in total donations. MBNA also was one of the top contributors to Republican candidates and committees in the 2004 elections with some $7.3 million in political donations. And now they're poised to reap rewards from their investment.

Huge corporate bankruptcies, like Enron and WorldCom, have cost thousands of people their jobs. But instead of addressing corporations run amok, Congress is helping these companies run rough-shod over Americans.

Congress needs to know that a vote for this bill will be an embarrassing vote siding with credit card companies over America's families. Please click here to make your pledge.

The changes in bankruptcy laws are just the start. This week the radical Republican leadership, like Rep. Tom DeLay, have declared a war on ordinary Americans with a corporate trifecta: bankruptcy law changes, a permanent repeal of the estate tax (which only affects the super-rich), and a budget that cuts health care and explodes the debt.

Ultimately, we need to change who runs Congress to stop the assault on America's middle class. Every action we take now is one step in that direction. Please act today.

Conservative commentator Debra J. Saunders slams the bankruptcy bill:

When Washington pushes for more responsibility among debtors, but not loan-shark-like lenders, when its "ownership society" principles don't make big corporations own up to their role in the bankruptcy problem, the GOP is toadying to big business.

Why do debtors have to bear the burden of creditors' bad business practices? Because they don't bankroll elections.

One of the least discussed changes in the new bankruptcy bill is the credit counseling provision. It may also be one of the most despicable. The new bill will require debtors to learn more about handling credit before they declare bankruptcy. Sounds great, right? Wrong.

What are credit counseling agencies?

Legitimate credit counseling agencies are (usually) non-profits providing valuable services to debtors. They offer education and financial guidance to help debtors get control of their debts. Some agencies also offer “debt repair plans.” Under these plans, the debtor pays the agency a fee, and the agency works to reduce the debtor’s monthly payments or overall debt (by negotiating reduced interest rates with creditors, consolidating debts, etc.).

Ideally, everyone wins: the debtor avoids bankruptcy; the creditor gets paid more than if the debts had been discharged in bankruptcy; and the creditor pays the agency enough of the debtor’s recovered payments to cover the agency’s costs.

The counseling industry boomed when bankruptcies skyrocketed. About nine million Americans contact these agencies each year; about 2 million people are in debt repair programs.

Big bad wolves

Here comes the bad news. Too often, credit counseling agencies are scams. According to a 2004 Senate subcommittee investigation, many pose as non-profits in order to fleece consumers:

Debtors seeking help receive little or no counseling. And millions of dollars that debtors pay in fees end up going toward executive salaries or are funneled to for-profit affiliates.

Several of the worst abusers were ultimately sued by the government. Just last month, they settled the suit for $6 million.

Meanwhile, the IRS is cracking down on other abuses:

The Internal Revenue Service has also been investigating nonprofit credit-counseling firms to see whether they are misusing their tax-exempt status. The tax agency is auditing 48 credit-counseling agencies -- accounting for about half of the industry's assets -- and has notified several firms that it intends to revoke their tax-exempt status.

Many credit counseling agencies are actually set up by the creditors. The credit card companies pay the fees, and that means they call the tune. Some agencies instruct their counselors to tell clients to pay the credit card companies, even if it means not paying the mortgage or the rent. Others forbid them from telling clients that bankruptcy might help them.

There are undoubtedly some very good credit counseling agencies out there. Unfortunately, they don’t carry any special sign to show that they are on the up and up. The bankruptcy bill will herd millions of families into the outstretched arms of companies that have no intention of helping them manage their money better.

All of which leads to some disturbing questions.

If the industry is so rife with abuse and bad faith, why are supporters of “reform” so eager to push more Americans into it?

Why does the bill require credit counseling for people who get sick, lose their jobs, or get called up to Iraq? Do reformers really think these unfortunate souls go broke for a lack of financial “education”?

And finally, is this new provision really about education? Or is it about giving creditors one last chance to pick debtors’ bones clean before they enter bankruptcy?