The Presidential Election: Will Broke Americans Get Bankruptcy Relief?

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The presidential election is rapidly approaching and David Chang with Chang and Carlin, LLP explores what is often lost in the rhetoric and verbal attacks are the key issues that affect the lives of every American, specifically bankruptcy and personal financial issues.

“Bankruptcy provides an opportunity for a fresh start, both for individuals and businesses. Of the myriad of issues debated by the current presidential hopefuls, the future of bankruptcy policy may affect Americans as profoundly as any..." - David Chang

The presidential election is rapidly approaching, and often lost in the rhetoric and verbal attacks are the key issues that affect the lives of every American. While the dialogue tends to flit between topics such as reproductive rights, foreign policy in Iran and China, and immigration, identifying the next president’s position on bankruptcy is a key to forecasting the nation’s financial health over the next four years.

Bankruptcy has been of increasing concern in the U.S. since the global financial collapse of 2008, and is seen as both a symptom of the nation’s financial struggles and an outlet to rebound from these challenges.

According to Chicago area bankruptcy attorney David Chang, “Bankruptcy provides an opportunity for a fresh start, both for individuals and businesses. Of the myriad of issues debated by the current presidential hopefuls, the future of bankruptcy policy may affect Americans as profoundly as any. For example, less restrictive bankruptcy filing laws could serve as a relief valve for many struggling Americans.” The presidential elections of 2012 may offer a glimpse into upcoming bankruptcy policy.

Recent Bankruptcy Reform:
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ushered in the current era of bankruptcy law, one that makes it much more difficult for borrowers to clear their debt. According to a recent article in CNN Money, “While the bankruptcy rate has fallen slightly since the law took effect -- from a rate of 1.4% in 2004 to 1.3% last year -- the average income of bankruptcy filers has increased....The findings indicate that the new requirements are pricing out many of the consumers who are least able to afford the fees.”

However, a presidential candidate who has interest in reopening the 2005 law could transform bankruptcy back into a more practical option for many in the U.S. who are suffering under the burden of unmanageable debt. Examining each candidate's’ position on this matter can be illuminating.

Personal Bankruptcy:
President Obama went on record in 2008, offering new bankruptcy proposals to counter the 2005 Act which would “...expedite the bankruptcy process for the military and their families by exempting them from a ‘harsh means test,’ cutting ‘unnecessary paperwork’ and ‘token counseling,’ and enacting a minimum homestead exemption to help them keep a greater share of their home's value.”

Mr. Romney has not yet been as vocal on personal bankruptcy policy, but the public may be privy to his views during the presidential election debates in October.

2008 Auto Bailout:
Another way to measure the 2012 candidate’s position on bankruptcy is to look at their approach to the distressed auto industry in 2008. Presidential hopeful Mitt Romney took a controversial stance by arguing that the auto industry should be allowed to go bankrupt in an op-ed piece in the New York Times.

Romney’s thesis was the following: “A managed bankruptcy may be the only path to the fundamental restructuring the industry needs. It would permit the companies to shed excess labor, pension and real estate costs. The federal government should provide guarantees for post-bankruptcy financing and assure car buyers that their warranties are not at risk.“

While President Obama has used this article to skewer Mr. Romney, accusing him of eagerness to liquidate businesses and jobs, Mr. Romney has stated that he would not have allowed a liquidation. Furthermore, the issue illustrates that Mr. Romney views bankruptcy as a viable option, through which a business could emerge strengthened and energized.

President Obama did authorize bailout funding to the “Big Three” auto companies to the tune of over $20 billion, but despite his criticism of Mr. Romney’s stance, the President later backed the subsequent bankruptcies of both GM and Chrysler. He released a statement, noting that, “...while Chrysler and GM are very different companies with very different paths forward, both need a fresh start to implement the restructuring plan they develop...That may mean using our bankruptcy code as a mechanism to help them restructure quickly and emerge stronger.”

While the candidates positions may fluctuate, the presidential election process will vet many important issues, and the nation’s struggles with bankruptcy should certainly be in the mix.

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