In Support Of Bankruptcy Bill

Kevin Drum asks the same question we have all been asking, "can anyone point me to the arguments in favor of this bill?". In the comments we get directed to the Volokh Conspiracy which has arguments in favor of the bill here:

...economic theory would predict that the primary effect of the introduction of credit cars would be to shift around patterns of consumer credit use, by substituting credit card debt for other less-attractive forms of credit, such as pawn shops, personal finance companies, and retail store credit (such as from appliance and furniture stores). In fact, this is what the evidence indicates has actually happened.

and here:

This article identifies three institutional factors that can explain the observed rise in bankruptcy filings over the past several decades: (1) A change in the relative economic costs and benefits associated with filing bankruptcy; (2) A change in social norms regarding bankruptcy; and (3) Changes in the nature of consumer credit, toward more national and impersonal forms of consumer credit. It is argued that all of these factors tend to increase the incentives for filing bankruptcy or reduce the constraints imposed on filing bankruptcy. The result has been to increase the equilibrium level of bankruptcy filings in America.

Read them yourself.

Although these posts get into detailed economic theory I find myself very unimpressed. Medical emergencies are never mentioned, yet half of all bankruptcy cases involve unexpected medical bills and/or loss of work time due to medical emergencies. I don't see how the subject can even be addressed without at least considering this. Also, it never points out the theoretical reason credit card interest is so high is because the credit is non-secured and easily defaulted. That is the risk credit card companies make and they charge for that risk.

The only argument I found compelling was the fact most people who declare bankruptcy pile up the credit card debt just before declaring, leading one to believe the person clearly knows they are about to default and might as well get what freebies they can. I agree that is bad. However, the question is whether the credit card companies have the information available to recognize this situation and cancel the credit accordingly. I suspect they could do this quite easily as long as they were willing to lose some profits when accidentally overreacting. Again, that is the risk credit card companies make -- it is their choice.

UPDATE: One more thing: they imply that the increase in bankruptcy cases is a bad thing, but never even try to back up that claim. At the personal level this is obvious, but these guys are talking economic theory. Is it economically bad for the country that bankruptcy cases are increasing? I don't know. In fact, I actually doubt it is bad in any macro-economic sense. Regardless, they need to make that case, not just assume it.