Forgive How Much Debt?

Unfortunately, Polonius's advice to Hamlet - "neither a borrower nor a lender be" - seems archaic in today's society. So, alas, do those inspiring stories from depression-era America about honest individuals who spent years paying back every dollar owed to local businessess, neighbors, or employees.

So, what should be done about today's reality that a record one out of every 100 households in the US is filing for bankruptcy this year? That's seven times as many as 20 years ago.

There is, as usual, a federal commission to guide us. But, after two years of debate, its nine members remained deeply split. That means Congress, prodded by lobbyists, will have to decide what reforms to adopt without decisive advice.

Credit card industry lobbyists want to keep the bankruptcy rules tight. Consumer lobby groups (and a narrow commission majority) want more generosity for bankruptcy claimers.

Neither side has a clean slate. The credit-card industry has lured thousands of Americans into debt by flooding mails and phones with 2 billion solicitations per year at come-on entry rates. Consumer groups seem willing to see borrowing be a form of gambling with easily forgiven losses.

What should Congress do?

Banks that issue cards are subject to federal regulation on creditworthiness. Tightening that screw should ensure better screening to eliminate mailing to, and signing up, proven or likely credit risks. A new national database of bankruptcy filers would help.

On the borrower's side of Polonius's equation, Congress ought to resist a commission plan of forgiveness for card debt older than 30 days, and be wary of too broad a relaxation of student loan debt. It also should be wary of expanding the value of assets that can be shielded in bankruptcy. Property values vary so widely between regions that this subject should perhaps be reviewed jointly by federal and state officials.

The basic point remains: Be fair to bankrupts - but also to the rest of Americans who conscientiously pay off their debts.