A Radical Economic Solution – Stop Paying Banks For Credit Card Debt

Your first reaction to this proposition might be, “What the hell? I’m not going to be a deadbeat!” but hang in there and I’m pretty sure that by the end of this article, you’ll see this concept in a whole different way.

This admittedly radical proposal came to me after Javaz mentioned in a comment that student loans can’t be cleared through bankruptcy and SueInCa expanded on this by explaining that credit card debt can no longer be cleared through bankruptcy. I went back and re-examined the destructive Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 that was passed by George W. Bush and a Republican Congress and caused these situations.

In essence, BAPCPA makes the possibility of escaping the lifelong debt that many Americans are lured into, far more unlikely. Bankruptcy laws no longer offer a one time (hopefully) reset, a chance to not have to live as a financial slave for the rest of one’s life. Once such an established tool and principle is taken out of the reach of many if not most citizens, a social pact is broken.

Paying bills is actually a choice. Wall Street and banks pay bills when they choose to and other times, they claim bankruptcy (corporations have different bankruptcy rules that protect them far more than Americans) or threaten Americans with Armageddon to frighten them into paying their bills for them. We’re “people” just like them, why can’t we make the same choice?

The wealthy, including banks and Wall Street, have been engaged in class warfare for decades, pillaging the 99% of its wealth while burdening them with debt. We have looked to our government to reverse this reverse Robin Hood system but so far, to no avail.

So what if millions of Americans who are drowning in credit card debt decided that they just wouldn’t pay their credit card bills anymore? What if as a massive group, they enforced a TARP deal in the reverse direction, from the banks to the people? In exchange for the banks getting to have their TARP money, tax loopholes and billions from derivatives that they grabbed while destroying the jobs, home ownership and retirement money of Americans, Americans get the banks to take on their debt?

Right now, there is approximately $800 billion in credit card debt in the U.S.. The Emergency Economic Stabilization Act of 2008 (part of this is known as TARP)  gave the banks $411 billion, “buying” their most toxic assets (in other words, we paid their debts for them). The Fannie Mae and Freddie Mac bailout/takeover was another $169 billion of bank debt they didn’t pay but we did for them. That is a total of $580 billion of our tax money that was given to banks with no guarantee it would ever be paid back though thankfully, $278 billion has been paid back so far (http://projects.propublica.org/bailout/main/summary).

As for how much money the banks made through the exploitation and raping of the housing market and the destruction of our economy while racking up all that debt, their profits are estimated to be in the trillions of dollars worldwide. Today, especially thanks to their not having to pay their own bills, banks are back in great shape today and sitting on mountains of money, including billions we gave them which they won’t lend back to our small businesses.

Maybe now it’s the people’s turn to demand the same kind of bailout. And since government won’t make the deal on their behalf, maybe the people should just make the deal themselves.

If necessary, Americans could get hysterical and threaten the banks with an Apoclyptic scenario first (they seem to like that kind of thing). Then, Americans could simply take their own bailout without asking, as the banks did with our money (Congress voted the EESA down, reflecting the voice of the people at the time yet through manipulations, banks got it passed against the people’s will in a highly unusual second vote maneuver).

Americans could then make the same promise to banks that banks made to them, “If we can get back into a position where we can afford to pay you back for the bailout, we will.” And Americans can pledge to follow all of the conditions that were put upon the banks when they received their bailout billions. Namely…none.

Then, with the banks in essence taking over the toxic assets of the American People, Americans will have much more money in their pockets and won’t need to use credit to buy things which would mean hundreds of billions in economic stimulus (without raising taxes, Baggers!) and more people able to keep their homes and pay their mortgages. Americans would have the breathing room to be able to get back up on their feet and once they were back in great shape, they could start paying back the banks as the banks have done with them.

Okay, let’s consider all the negatives with arguments mitigating them provided (I am not a lawyer so nothing below is a recommendation or legal advice, it’s just discussion):

a. It would wreck people’s credit rating for seven years.

True but if one is buried in credit debt right now, one wouldn’t have any credit to use or be approved for anyway. And if the hundreds or more that people pay each month on their credit cards was suddenly extra income, they wouldn’t need credit to pay for things. On top of that, according to the law, after seven years, they would have a clean credit rating once again and be able to apply for credit (but don’t get sucked in this time!). Is keeping a good credit rating for seven years that one could never put to use anyway, worth staying hopelessly mired in debt for the rest of one’s life?

b. It could destabilize the economy and banks and cause a recession or depression.

Just the opposite. Yes, bank stocks and the stock market would fall in the near term but instead of hundreds of billions being paid to banks that they don’t spend but just trade back and forth on Wall Street, hundreds of billions of dollars would be spent in the economy by people and create greater demand for goods and services which would also generate more and more jobs to provide for the increased demand for those goods and services. Again, banks don’t buy things, people buy things and 70% of our economy is  consumer driven. It would boost the economy and though banks and Wall Street would be screaming bloody murder, they too would profit and benefit from a re-strengthened U.S. economy in the end.

c. The banks could sue people and put a lien on their houses.

This is true however, each state has a Homestead Exemption, an amount of equity in one’s house that is yours no matter what, it can’t be taken from you by any lawsuit. You can find your state’s amount here: http://law.findlaw.com/state-laws/homestead/. If you have no equity in your house or are upside-down in it, in addition to the Homestead Exemption protecting you if you were to gain a little equity, a lien would of course be moot and you could still sell your house at any time. Also, depending upon the amount that is owed on a credit card, it just isn’t worth a bank’s time and expense to file a lawsuit against everyone who defaults on their card. There’s no guarantee on this in any specific case but in the end, after attempting collection for a period of time, banks often just write off defaults.

d. Bill collectors will harass people endlessly and a lien could be put on their bank account?s

The Truth in Lending Law contains a provision that says that if you write a letter to any collection agency that is calling or writing you to collect on a debt and inform them that you no longer want them to contact you…they have to stop or THEY can be sued by you for each infraction after receiving your letter. If a bank goes to the expense and trouble of filing a lawsuit and gets a judgment, they can put a lien on your assets including bank accounts. However, if one didn’t have money in their bank account, there would be nothing for them to get. And, if one was taking a bailout from a bank, it of course would be wise not to keep that money in their bank.

e. People have a moral obligation to pay their debts.

I agree though the only absolute I believe in is that there are no absolutes. The concept of bankruptcy has been around for thousands of years as a human right and contains a moral imperative that overrides that of debt, that is, human beings should not be forced into literal or figurative servitude simply because they owe money. And throughout history for thousands of years, in religion and society, there has been a recognition that after a period of time, people should be able to have a chance for a fresh start. Here’s a little history:

The word bankruptcy is formed from the ancient Latin bancus (a bench or table), and ruptus (broken). A “bank” originally referred to a bench, which the first bankers had in the public places, in markets, fairs, etc. on which they tolled their money, wrote their bills of exchange, etc. Hence, when a banker failed, he broke his bank, to advertise to the public that the person to whom the bank belonged was no longer in a condition to continue his business. As this practice was very frequent in Italy, it is said the term bankrupt is derived from the Italian banca rotta, broken bank

In Ancient Greece, bankruptcy did not exist. If a man owed and he could not pay, he and his wife, children or servants were forced into “debt slavery”, until the creditor recouped losses via their physical labour.

In the Torah, or Old Testament, every seventh year is decreed by Mosaic Law as a Sabbatical year wherein the release of all debts that are owed by members of the community is mandated, but not of “foreigners”.

In Islamic teaching, according to the Qur’an, an insolvent person was deemed to be allowed time to be able to pay out his debt. This is recorded in the Qur’an’s second chapter (Sura Al-Baqara), Verse 280, which notes: “And if someone is in hardship, then let there be postponement until a time of ease. But if you give from your right as charity, then it is better for you, if you only knew.”

The Statute of Bankrupts of 1542 was the first statute under English law dealing with bankruptcy or insolvency.[4] Bankruptcy is also documented in East Asia. According to al-Maqrizi, the Yassa of Genghis Khan contained a provision that mandated the death penalty for anyone who became bankrupt three times.

http://en.wikipedia.org/wiki/Bankruptcy

In Colonial America–where moneylending was governed as much by moral codes as by legal ones–defaulting on your debts was considered a moral failing. Accordingly, owing as little as 40 shillings (less than the price of a fine pair of bedsheets) could get you thrown into a Dickensian debtors’ prison. Amid the financial turmoil that followed the Revolutionary War, however, delegates to the Constitutional Convention predicted the nation might need laws that would facilitate going belly-up in an orderly fashion.

http://www.time.com/time/magazine/article/0,9171,1902827,00.html#ixzz1bGo8mHeK

A moral compact is a two way street. At the same time that banks were backing and passing their Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 to lock out people from using bankruptcy, banks were using all kinds of trickery and fraud to severely increase indebtedness such as sub-prime loans, deceptive credit card rates, hiking interest rates on credit cards without notice, charging fees consumers never agreed to, processing checks from largest to smallest to provide for the most overdrawn fees, etc. So the lawlessness and abuse on the part of banks does not make a great argument as to why Americans should play by the rules agreed to with them while they don’t have to. Bad faith is commonly a cause of a breach of contract and banks haven’t been too interested in showing its customers good faith ($5/month ATM card usage fee anyone?).

Add to that, many people don’t even have the money to file for bankruptcy. Engineered into BAPCPA was a presumption of fraud on both the parts of the one filing and their attorney, unless proven otherwise. Bankruptcy attorneys are now liable for steep fines if any information provided by one of their clients is found to be inaccurate. So, some lawyers simply stopped providing bankruptcy services and those that did, raised their fees by as much as double to compensate for added insurance, now costing people as much as $3,000 to $6,000 to file or more…and when you’re in debt and have no money to pay your bills and no credit…how do you pay $6,000 to file for bankruptcy? Not with a credit card, that’s for sure.

Lastly, in addition to the moral conflict between paying one’s debts and not being eternally enslaved by one’s debts, if such a coordinated action by millions of Americans jump-started the economy, created many jobs and put people in a position where they had enough income to pay for their needs, savings and once again pay back on their credit cards as they could afford to do so, wouldn’t there be a moral imperative to help millions of struggling Americans as opposed to allowing them to continue to struggle to get by day in and day out?

Now this proposition isn’t aimed at everyone. If one has a good income and can afford to pay their debts, I think they should. For me, in such a case, there isn’t a moral imperative overriding the responsibility to repay a debt. However, if one is jobless, ill, elderly or poorly paid and can’t afford to pay their credit cards, their rent or mortgage, for food, clothes and utilities it’s another story.

If our system allows fresh starts for banks and Wall Street after criminally destroying our economy, if they are allowed not only to stop paying on their debts but to have them paid off by the American people, then shouldn’t the American people be permitted the same in return, to stop paying on its debt to banks in order to have sufficient money to pay for  necessities and have a chance to get their lives and their futures back on track?

It may be a radical proposal but it is one way the people can help to solve our economic crisis and injustice through their own direct action. As Senator Dick Durbin said in the midst of the financial crisis, “And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.”

And that was before Citizens United which only made that situation worse.

Occupy Wall Street instructs us that the only way things can really change is if the American People do something, not their politicians, the American People themselves.

And what this proposition is saying is that we know there won’t be laws passed by this Congress to truly help us and our economy, the banks and Wall Street will see to it. So it’s up to the American People to do something and they can actually do something by not doing something, they can give themselves more money in their pocket and stimulate the economy simply by taking the same kind of bailout from the banks that we gave them.

And just as they are doing with us, we’ll happily pay them back when we can, once we too are making a profit again.