Soaked By Congress

CHRIS USHER FOR TIME
LOSING THE HOME: After his wife's death from diabetes, Allen Smith faces losing his modest Delaware home. He fell behind on mortgage payments and other bills. Creditors will divide the proceeds from the sale of what little he has

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Unable to do so, she became increasingly short of cash and unable to pay her bills--rent, car, credit cards. She began alternating payments--the rent one month, credit cards the next, making a car payment after that. That didn't work either, and soon she was getting dunning letters and phone calls. One credit-card company threatened to attach her wages.

"It is just so frustrating to know you owe this much money," she says. "I wish I had the money to pay it off and be O.K. I can't sleep at night. I have tried to not let it affect me with my children. Kids don't know. They say, 'Mommy, I want this.' 'Can we do that?' My God, if they only knew."

When she fell behind in the rent and her landlord warned that he would evict her, she knew she had to do something. She turned to a Manhattan consumer-bankruptcy lawyer, Charles Juntikka. Garcia was typical of many of his clients--embarrassed by her debts, upset over not being able to pay her bills, not knowing where to turn. "There is this image of middle-class people running up huge debts, then declaring bankruptcy and laughing at everyone," he says. "I've just never seen that. These people hurt."

Juntikka filed a petition for Garcia under Chapter 7, seeking to have her unsecured credit-card debt discharged. Garcia says she intends to give up the car to further reduce her debt load, and Juntikka is optimistic she will get a fresh start. Now, for the first time in months, Garcia says, she can sleep at night.

But if the Bankruptcy Reform Act pending in Congress were the law, Garcia would not be able to rest so easy. "Lucy wouldn't be able to obtain a discharge under this bill," says Juntikka. "Under the new standards Congress has put in the bill, she earns too much money. She could not get a discharge. She would still be stuck with some of the credit-card bills she can't pay now."

The standards referred to by Juntikka concern the means testing that allocates a fixed amount of expenses to debtors in computing their ability to pay their debts. And as Juntikka interprets them, Garcia would not be able to seek relief in Chapter 7. Even if by some chance she could prove her case in court, he says, the process would be lengthy and costly. "People aren't going to be able to deal with these draconian measures," he says. As a result, some people will be permanently indebted to credit-card companies, others will see their wages attached, some may lose their homes. "This is going to cause so much misery," he says.

Warren, the Harvard law professor and longtime student of bankruptcy, marvels at how a piece of legislation that could penalize so many people has come this far. "This is one of those things with low visibility, and therefore it's easy to give in to the interest group," says Warren. "It all flies below the radar screen. That's the best place for the lobbyists. That's where the pickings are the fattest. The only way to explain it is campaign contributions."

Second in a series of Investigative Reports on campaign finance