Going for Broke.(The Talk of the Town)(bankruptcy law)

In recent months, a lot of people have been handed financial get-out-of-jail-free cards. C.E.O.s who presided over billions in losses have walked away with tens of millions in compensation. The Federal Reserve has showered cheap money on banks and brokerages. Even Bear Stearns caught a break when, last week, J. P. Morgan agreed to quintuple the price it will pay to take over the firm. But there's one group for whom forgiveness has not been forthcoming: ordinary consumers struggling with piles of credit-card debt. For them, escaping the burden of their bad decisions and their bad luck has become much harder.

That's because of a law that Congress passed in 2005 which has made it more difficult for people to write off their debts. Filing for bankruptcy has become much more expensive. More important, while lower-income people can still declare Chapter 7, which takes away your assets but then discharges your debts, most middle- and higher-income people now have to declare Chapter 13. That means they have to pay their creditors monthly for five years before they're free.

Historically, the U.S. has treated debtors leniently. But the credit-card industry, which was the driving force behind the new law, insisted that tolerance had caused a bankruptcy "crisis": the number of bankruptcies in the U.S. quintupled between 1980 and 2003. Irresponsible debtors, the argument went, were buying plasma TVs and fancy vacations and then declaring bankruptcy to escape their debts. And they were being supported by the rest of us, who had to pay higher interest rates and fees on our credit cards to cover credit-card companies' billions in annual write-offs. Cracking down on those who "abused the bankruptcy laws," President Bush said, would therefore "make credit more affordable." And we'd all be better off.

So are we? That depends on your perspective. The law did slash the number of bankruptcies--they fell by sixty-two per cent between 2004 and 2006. And the credit-card companies should be happy--their profits rose thirty per cent between 2005 and 2007. But the law hasn't done much for anyone else. Interest rates and credit-card fees have not fallen as promised. And for debtors life has become significantly harder: many can't afford bankruptcy--strangely enough, it's possible to be too poor to pay the filing fees--and many others can't qualify. These people will either spend the next five years having their paychecks garnished or simply muddle along, avoiding debt collectors and accumulating huge interest and late fees on their credit cards.

One might say: so what? Even if bankruptcy is sometimes precipitated by bad luck or by an economic downturn, it's always the result of people living beyond their means, and why should they get away scot-free while the rest of us pay our bills? It's a ...