A customer called me. I've made several loans for him over the years. He's been a fairly successful guy over the years, but like many, he's fallen on hard times. He currently doesn't own a home, having short sold a few years ago after nearly suffering a divorce. He's been a small sub-contractor who used to employ a crew of 20 to 30 employees.
With the slump in the economy, his income was reduced by more than 70% from normal, even farther when you consider where he was at the peaks of the economy.
He's struggling with debt left over from a lifestyle developed at an income that was much higher, and is currently higher than his income. But, his income is still more than the median income for a two family household in the area. The crushing level of debt leaves him with little money to pay extra on debt so he can get ahead. In fact a recent heart attack has added several thousand to his debt level and lead to a couple of collections and a judgment.
His debt load is double his current income. He can contribute very little to the current economy. Do you know anyone like this? I probably have 250 customers in this situation. These people all created jobs in the past. They are dynamic, engaged, creative and work hard when they are on their game. Unfortunateley, some of them are now defeated, maybe never to come back.
In the past, a tool that was used to get people re-engaged in the economy was a Chapter 7 Bankruptcy. That's the bankruptcy chapter that allows for a person to eliminate debt and start over. The point of the law was to get that person back in the economy, producing, buying and making the entire economy better for the country. When this client contacted me for ideas, he had already been to the Bankruptcy attorney. Guess what.....he doesn't qualify.
In the early 2000's, fueled by campaign contributions by the credit card companies, Congress and the then President changed the rules on Bankruptcy to favor the credit card companies. So, now there's a "means" test. And, he doesn't qualify. He makes too much money. Weird, huh? After all, the credit card companies didn't drop their rates or fee's when the new rules came into being. That was always the justification for the high rates and fee's, the potential for losses to the creditor. Limit the potential for losses and you would think the costs would go down. At least, that was the theory justifying the legislation. Unfortunately, only profits went up. For the credit card companies, that is....
So, major corporations can file for bankruptcy, shed thousands of jobs, but a small business person with potential to create jobs can't. Here's my idea for improving the economy. Let's go back to the old rules and get my customer back in the game.