Yesterday’s commentary on the new bankruptcy  laws elicited the very interesting response below from an insider, a New Jersey lawyer who is in the thick of it. Though less pessimistic than I about the long-term impact of the new law, he sees it nonetheless as restricting consumer spending, possible severely. He writes as follows:

“I am a bankruptcy attorney filing a high volume of consumer bankruptcy cases in Northern New Jersey. I am very familiar with the amendments to the bankruptcy code you discussed in yesterday's column. You should know that attorneys and judges practicing in the field, including many creditors' attorneys, deplored the changes to the law.  We got a first hand view of how legislation moves in this country, and it was frightening. The bill was written by the credit card arms of MBNA, Chase, Citibank and Capital One on the strength of a lot of congressional access.  Who elects these politicians that so easily abdicate their judgment to a power lobby?

Filings Down 70%

“The founders would be mortified.  As I do not doubt that almost all legislation is written in this manner, the decline of the American libertarian experiment seems preordained.

The proximate result of the law is that bankruptcy filings are down 70% in New Jersey measured in the  3d quarter of 2006, and the numbers are roughly similar country-wide. 

“I do not share your pessimism, however.  Bankruptcy has become more complex and expensive.  In application, perhaps 5 - 10% of my clients are being forced into the more onerous payment plans mandated in the revision.  The pipeline of people who need to file is filling again, and lawyers are steadily figuring out the law.  

I think the more immediate impact of the law will be felt as another constriction upon the growth of consumer credit.  Hidden in the bill was a reduction of the amortization schedules for credit card balances to 10 years (from 20-30), doubling minimums in some cases.  The strains on the average Joe's income can not mount forever.  There must be a breaking point. Consumers will eventually stop spending.  I thought we should have passed that point already, so I am already wrong.  But now I think we move into your area of expertise.”

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Last Call, San Francisco!

There are still some seats left at the two Hidden Pivot seminar scheduled -- in San Francisco on November 11-12; and in Sydney, Australia on  December 2-3.  You can  request a registration form and further details by clicking here.  Please specify which session you are interested in.