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Lobbying for Extra Credit

     One of the few pieces of major legislation that has recently passed with overwhelming support from both parties was the bankruptcy reform bill, signed into law by President George Bush in April. While a bipartisan majority in both houses of Congress endorsed the bill, the media have lamented the new laws reforms.

     Journalists on NBC, CBS, and ABC have called Chapter 7 bankruptcy a safety net, a new lease on life, and a fresh start. In contrast, as one interviewee put it, theres a special place in hell for those who crafted the reform bill. While not every story took such a hyperbolic tone, the media used the victims of Hurricane Katrina to lobby against a reform they didnt particularly like.

     The networks showed roughly the same interest in bankruptcy after Katrina as they did when the bill was in Congress. TheBusiness & Media Institute analyzed network news stories between April 1 and October 17, finding six full stories in the weeks surrounding the bills passage. In the wake of Hurricane Katrinas destruction, as the new laws effective date approached, the media coverage was seven full stories. The recent stories tied the victims welfare to the obvious choice to file bankruptcy, as NBCs Alexis Glick put it on the October 10 Today show.

A New Chapter in Bankruptcy

     The new bankruptcy law, which just took effect October 17, limits clean slate Chapter 7 bankruptcy filings by people with enough income to settle at least a share of their debts. While Chapter 7 disposes all debts, the legislation included a means test requiring those with incomes above the state median to file Chapter 13 instead. Under Chapter 13, debtors must make as many payments as possible under a court-supervised plan in order to start over with a clean credit history. In addition, debtors must take a course in credit counseling and financial planning. To curb fraud, more extensive financial documentation is required.

Giving Credit Where Its Due

     When covering bankruptcy, the media have alluded to safety nets, spiraling health bills, and bad luck. Once bankruptcy reform passed the House of Representatives on April 14 by a wide margin, ABC and CBS each devoted an entire story to the issue. On World News Tonight, ABCs Linda Douglas declared it a big victory for the banks and the credit card companies because it will make it much harder to wipe out your debts and start all over again. CBS Evening News anchor Bob Schieffer warned that the changes will wipe out the safety net for thousands who are out of work or face crushing medical bills.

     To treat bankruptcy as a safety net would not be, as The Heritage Foundations Tim Kane pointed out, a sign of healthy entrepreneurship. In an April 7 WebMemo titled The Bankruptcy Bill and Debt Obesity, Kane noted that bankruptcy filings have been doubling every decade for nearly three decades. The abundant supply of credit is not matched by an abundance of personal responsibility in current bankruptcy law.

     Instead of considering bankruptcy reform as a way to discourage bad borrowing decisions, CBSs Jim Axelrod on the April 15 CBS Morning News saw it as an impediment to the new lease [that] was a kind of bankruptcy called Chapter 7 that, in a snap, made his debts disappear. The medias labeling of bankruptcy as a safety net is consistent with its treatment of Social Security as documented by an earlier BMI study, Biased Accounts.

     On April 15, the morning after the Houses endorsement, CNBCs Ron Insana appeared on NBCs Today to discuss the legislation with Katie Couric. While Insana at least hinted that encouraging personal responsibility was a factor in the reforms, Couric claimed that this whole notion that people are trying to get out of their debt, is that a little bit misleading? Stating that about half file because of mounting debt from health problems, she used faulty statistics from a Harvard study to support her claim. A close look at that study shows that Courics assessment was off base.

     According to Gail Heriot in a February 11 article for National Review Online, the Harvard study does not claim that injury or illness was the primary cause of [54.5 percent of all] bankruptcies. And, perhaps more importantly, it does not claim that the bankruptcies were caused by the crush of medical bills. Heriot pointed out that 73 percent, an overwhelming majority, had medical expenses less than $1,000, and that only 28.3 percent of the survey participants agreed with the authors of the study that illness or injury caused their bankruptcy. The media turned the Harvard study on its head to suggest that bankruptcy is most often a result of incontrollable bad luck.

     Lady luck was also the theme of an April 17 Jerry Bowen report for CBSs Sunday Morning. In a story about a Las Vegas couple on the verge of bankruptcy, Bowen followed them to a night school class on how to file for bankruptcy. Not only did he find they werent alone, but he also concluded that, In a city where luck is very fickle, they rolled the dice and lost. However, Bowen didnt address the fact that luck had little to do with one mans expensive love affairs.

     Although Bowen gave air time to a credit card industry representative who alluded to the importance of personal responsibility and a free market that gives everybody a shot at the golden ring, Bowen stacked the deck against lenders and a new law [that] will make that golden ring even more elusive. By presenting a group of debtors long on credit card bills and short on cash, Bowen gave the impression that credit card companies and bad luck were to blame for their account holders spending habits.

Ominous Clouds of Debt

     To appraise the financial challenges of Katrinas victims, the media have reported prolifically on everything from flood insurance to rebuilding costs on the Gulf Coast. As this weeks effective date for the bankruptcy law approached, all three broadcast networks used the storms victims to lobby for the delay of the reform.

     A September 25 World News Tonight report offered consumer advice shrouded in adversity. ABCs Gigi Stone interviewed a couple who were forced to turn to credit cards after losing their mobile home to Floridas Hurricane Ivan. In the process the couple racked up $60,000 in debt and had to file for bankruptcy. Stone did not say whether the couple would have passed the new means test for Chapter 7, though its hard to imagine they would have failed, given their modest means.

     Still, Stone signed off by saying things could get even tougher for families like these. New laws will make it more difficult for people to file for bankruptcy. In fact, some consumer advocates are urging Congress to delay those laws for hurricane victims. Despite offering useful consumer advice like, dont sign anything, hoard your cash, and use your credit cards as a last resort, she didnt reveal that indigent debtors will likely pass the means test for Chapter 7 and will still be able to file post-reform. In effect, the report lobbied for a delay without presenting all the facts.

     A September 30 report by Bill Whitaker of the CBS Evening News explored what thousands of victims do after every hurricane, [turn] to an attorney and bankruptcy. While chronicling a Mississippi couple as they try to cope with the effects of the storm, Whitaker reported, And they might be the lucky ones, filing now before the new bankruptcy law kicks in to make it harder for Americans to erase their debts. In this instance, Whitaker assumed that no victim could ever be eligible for Chapter 7 post reform. Like other reports, Whitaker repeated the idea that the old bankruptcy format guaranteed people a fresh start.