Department

Ranticles: “Living Beyond Your Means”

By Canticle

RanticlesOn an average week in the United States, 30000 people file for personal bankruptcy.

Recently, laws were changed and will go into effect on October 17th that will push more people into Chapter 13 Bankruptcy as opposed to Chapter 7 Bankruptcy. Chapter 7 allows an individual to write off all unsecured debt, included credit cards.

Chapter 13 requires repayment of debt over a court approved five year plan.

The new laws, the result of intense lobbying by credit card and banking companies, means that more Americans will be forced into Chapter 13 as opposed to Chapter 7 bankruptcy after October 17th.

Last week, 102863 Americans filed for personal bankruptcy, trying to get in ahead of the deadline. This is the price of living beyond your means.

It's an easy trap to get into. Credit card companies in the US (and unfortunately, more often than before in Canada) are more than happy to give out high interest rate cards to people with little to no credit rating. They spend it as if its cash, and pay upwards of 29% interest (by contrast, my credit card, secured as it was through a bank in the days before the rampant predation that is becoming common in Canada and has been common for years in the US, has a 12% interest rate). Then they get a new credit card to pay off the old one. No one can escape that kind of cycle. Hell, it's hard enough as a homeowner with a child on the way to make ends meet when the house needs repairs, I can't fathom having 3 (sometimes more) credit cards all being used exclusively to pay each other off at 29% interest rates (I'm scared enough of the furniture I bought interest free for 9 months on a factory credit card, even though I'll be paying it off before the 9 months are up).

This is what baffles me about the 'American Consumer' (tm). I cannot fathom how anyone can consider an economy strong when you are buying things with money you don't have. Even at the lowest rate of 30000 a week claiming bankruptcy that means in an average year 1560000 Americans file for bankruptcy. 1.5 million people a year.

That isn't a strong economy, that's a debtor nation. The only people getting rich in that kind of economy are the ones issuing the debt. For the consumers, that means banks and credit card companies, for the US it means whatever nation loans them the money (the EU, China, Japan or whoever else). It's scary for me, as a Canadian, because I can see the predatory nature of these institutions slipping north of the border in a way they didn't even 6 years ago. 6 years ago, with a great credit rating and money in the bank, I was denied a low interest credit card (I had one that was paid off as well at the time) because my net worth wasn't high enough.

Today, if I applied for that card, they'd cheerfully issue me one at a 29% interest rate. That isn't healthy for any kind of consumer economy, and I wish I had some kind of workable solution to prevent it. Unfortunately, the only way to prevent it is to practice self restraint. And for a lot of people, it's hard to restrain yourselves when you've got a $20000 a year job, a kid you want to put through school, and no benefits. Asking people in those situations to forgo all the things they are told over and over again that they need to consume is extremely difficult.

Is it their own fault? Yes, but by the same token, it's the banks fault for giving out a card when they know in all likelihood they'll be pursuing the individual in bankruptcy court. Rather than exercise good, sound, financially viable banking practices, banks and credit card companies would rather have a class of indentured servants who will labour exclusively for the purposes of paying off their accumulated debts. The new bankruptcy laws in the US only promote this further, as bankruptcy will no longer be a starting over point for people too far gone to do otherwise. With the new laws, bankruptcy will be the beginning of a process that sees people work for one employer, to pay their lord and master the money owed them, surviving on whatever a court decides is a living amount from what remains of their paycheque.

You say it's their stupidity. Well, it's not always stupidity. People lose jobs. They have to take lower paying work. Disasters take place. Even yourself, with your debt, could find one day that your employer is another Enron, evaporating your savings and leaving you with no immediate means to pay off your accumulated debt. Economic downturns happen, locally, nationally. Blaming it on 'stupidity' is hubris. Yes, stupidity is to blame, I think anyone who pays one credit off with another, perpetually rolling over introductory interest rates, is stupid. But how they got to that point isn't always stupid at all.

Nuisance lawsuits force people to defend themselves in the US, hospital stays with little or no health insurance impact people severely in the US. Bad luck happens, but it's happening to at least 300000 Americans a year out of the 1.5 million declaring bankruptcy, and it's easily avoidable with simple measures by Government or, if someone is extremely anti government, the local community. People don't take these steps, though, so these things are guaranteed to keep happening and they are guaranteed to get worse.

As a Canadian, the only debt I have to worry about is what I choose to take on. If someone files a nuisance lawsuit against me, they will be screwed unless I actually did something actionable, because a simple court paper on my part not only means I don't have to pay for my legal defense, but that if I win my opponent, and not I, will be the one paying my lawyer for his time. If I am involved in an accident that results in a loss of wages or an extended hospital stay, there will be no colossal bill, insurance or not. As a Canadian, I do not have to worry about all but the most esoteric and bizarre sets of circumstances throwing me into bankruptcy, beyond my own financial choices.

As an American, you need to worry about these things. Even the best insurance options in the US have deductibles, and for extended hospital stays, you will find the best insurance companies constantly find ways to determine you aren't actually covered after all. Why should the average middle class family have to worry that a car accident could lead to bankruptcy? Why should a small store owner worry that a slip and fall outside his store could lead to personal bankruptcy? Living day to day and fearing for your finances over things outside your control is no way to live.

Canticle on October 15, 2005.