Debtor Nation

So much for those wealthy debtors Congress feared abused bankruptcy

Harvard professor Elizabeth Warren's always excellent group blog on the economics of being middle class this week offers a link and a nice little teaser to a Washington Post story on the squalid situations of the bankrupt. We're not talking about yuppies trying to skate out from under their Capital One cards here.

The first reports on the new bankruptcy law are trickling in, and they are embarrassing those who said that bankruptcy was loaded with deadbeats. The new law requires everyone--no matter the reason for filing bankruptcy and no matter how low their incomes--must take a credit counseling session before they can file for bankruptcy. The idea was to pressure those who could repay their debts into debt management plans and away from bankruptcy.

But who is showing up for credit counseling? A new report from the Washington Post this morning says that credit counselors report that most of the people who come to them before filing for bankruptcy are in terrible financial shape, "people with true hardship, such as lost jobs or disabilities that cut their incomes." According to a credit counseling spokesman, "virtually none" qualified to pay anything. Many couldn't even afford the $20-75 counseling fee.

Warren's blog is truly worth a bookmark, but if you want the Post story without her read, click here.