Summary and Commentary:
Starting by painting a vivid tableau of a §341 Meeting of Creditors, its atmosphere is aptly compared with the anxiety of an emergency room. The metaphor gets pushed too far, with the Trustee being likened to a doctor diagnosing people "with a financial emergency- bankruptcy." This would be a fully congruent comparison only if, and I hesitate to extend this metaphor, because most Trustees are truly good and caring people, who keep a debtor’s interest in mind, if not at heart, a medical doctor was charged by his Hippocratic Oath to first do no harm to the viruses, tumors and injuries the patient suffers from. (And I’ll admit my extension of this metaphor may be a bit unfair in comparing credit cards and mortgages to viruses and tumors.) But bankruptcy trustees are charged in, among other places, 11 U.S.C. §§ 704 and 1302, with administering an estate, ensuring debtor compliance with the Bankruptcy Code and a host of other obligations. Working for the Debtor’s financial health is not one of those obligations.
This metaphor could be simply a literary trope, especially as it seems to be intended to show how a the §341 Meeting of Creditors is a "ceremon[y] to mark downward mobility" in contrast to graduations or housewarmings. Given the limited role that this opening scene ascribes to the debtor’s attorney, who is only asked (but not allowed to answer) the banal question "What’s next?", it a initial concern that the value of a debtor’s attorney will be properly weighed. And while, in reviewing this book in chapter order, I have not fully read the later chapters, this is concern is compounded by Chapter 10, which opines that debtor’s attorneys guide their clients bankruptcy choices based on race, and this concern is assuaged by Chapter 9, which discusses the severe difficulties pro se debtors face in filing bankruptcy without an attorney.
The answer to the debtor’s question about what happens after the §341 Meeting of Creditors is, however, soon provided:
Some will receive a discharge of their debts in a few weeks, while others will struggle to repay creditors for years. Some will save their houses and see bankruptcy as a miraculous cure. Others will suffer continued hardships, skid farther down the economic ladder, and view bankruptcy as a plea for help that went unanswered.
This is contrast between Chapter 7 and Chapter 13 bankruptcies is a rather incomplete picture. While debtors that file Chapter 7 may receive a discharge "in a few weeks" and Chapter 13 debtors will have a plan that, if successful, lasts between 3 and 5 years, most Chapter 7 debtors continue to struggle for years with car and house payments, often additionally having student loans, taxes bills and child support obligations. The Chapter 7 discharge does not result in most debtors being suddenly debt free. Further, a very large proportion of Chapter 13 Debtors, while not receiving a discharge for several years, pay little or nothing to unsecured creditors. This in essence leaves them paying the very same secured and priority debts that the Chapter 7 debtor pays. And while first mortgages generally cannot be modified in either Chapter 7 or Chapter 13, most other debts, including car payments, taxes, student loans and often junior mortgages, have lower payments in Chapter 13 than when paid directly following a Chapter 7 discharge.
It also gives little weight to the distinction that debtors must pay all of their Chapter 7 fees, including attorney’s fees, credit counseling costs, and filing fees, before filing, whereas in Chapter 13 most (and in many jurisdictions all) of these costs can be paid over time, while obtaining immediate relief and protection from bankruptcy. Later in the chapter, when discussing the "financial fragility" of the middle class, the 2011 study by Lusardi, Schneider, and Tufano, entitled "Financially Fragile Households," (http://www.nber.org/papers/w17072) is cited for its finding that one-half of American families could not, when faced with a financial emergency, "could not come up with $2,000 from savings, family or friends, or borrowing." It is not clear why this inability is not recognized as one of the proper bases for Chapter 13, since in essence, that often is the only way the middle class can "finance" and afford to file bankruptcy, particularly when faced with time constraints such as garnishments, repossessions and foreclosures.
Once past the very vivid introduction, the chapter proceeds to describe how debt has become the "new middle-class status symbol." After recently reading David Graeber’s excellent book, Debt: The First 5,000 Years, its not clear how new this situation really is. Perhaps the better distinction would be that while David Graeber showed that historically debts between individuals and local organizations actually served to bind communities together, the current globalization and commoditization of debt to distant and impersonal financial institutions has broken that community. Or more likely, the 20th century experience where the Middle Class saw assets and income increase faster than debt was the anomaly and the current reversed situation is more in line with the historical norm.
That, notwithstanding, it is true that since at least 1985, household debt has outpaced growth in household income. Nor is this increase in debt balanced by an increase in household assets. Consumer debt has become one of the most commonly shared demographic characteristics of middle-class Americans- more common that home ownership, marriage, a college education or church attendance. It could be argued that having consumer debt now defines what it means to be middle-class. This makes the anti-mortgage modification rant by Rick Santelli, considered one of the founding events for the Tea Party, a particularly ironic act of class warfare prestidigitation by the financial services industry. (If in doubt, consider that Mr. Santelli was, prior to become a highly paid television commentator, a successful hedge fund manager.)
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