Life was sweet for Tony Paterno. He had a pressure-washing business, cleaning the best hotels and restaurants in Houston. He was grossing $120,000 a year and taking home about $80,000.
Then he got a cough.
"I'd never been sick before," Paterno says. "I thought I was 10 feet tall and bulletproof. Once, I fell 20 feet off a roof and landed on concrete and didn't get hurt."
He had that funny kind of American optimism that discounts the notion that things can go terribly wrong. He had no medical insurance.
Paterno was 35 when he started to cough. It went on for two weeks. He paid $110 for a visit to a doc-in-the-box. The doc prescribed cough medicine with codeine. Paterno took some on Sun., April 1, 2001. He didn't come to until April 4.
He ended up in intensive care for two weeks. His kidneys failed. He needed dialysis. His right leg was temporarily paralyzed. He was laid up until nearly Christmas. Then he went broke. And he lost his business. He had already lost his kids in a divorce, and now the child support that he couldn't pay his ex-wife in Colorado was mounting.
Paterno says his life was ruined with a swig of cough syrup -- an allergic reaction.
Then the creditors moved in. Texas and the IRS slammed him for back taxes. Colorado got on him like a pit bull. His medical bills topped $100,000.
Paterno's been in Atlanta a couple of years. He supervises the maintenance crew at an apartment complex in northwest Atlanta and pays $280 a week to live in an extended stay hotel. He can't rent an apartment because he's going bankrupt. That's where I met him -- in federal bankruptcy court downtown.
With about two weeks to spare, Paterno is filing Chapter 7, which wipes out debt and gives you a clean slate. On Oct. 17, the law changes drastically, making it much tougher to go bankrupt. The new law was drafted by the Republican Congress as a love note to the credit card industry. But it wasn't just Republicans. Sen. Joe Biden, D-Del., was a big supporter of the law. The Delaware-based credit card giant, MBNA, is Biden's biggest campaign contributor.
"I used to be a prick," Paterno says. "But this has made me humble. I didn't even know how to take the bus. Now I do."
He's lucky, he says, because he filed early enough to beat the deadline. "I feel sorry for anybody who's not able to get it done by Oct. 17."
Among other changes, filing fees increase under the new law, which means attorneys will have to charge more. For a no-frills Chapter 7, attorney Carol Colliersmith charges $750. She'll go up to at least $950 under the new law. Plus, Chapter 7 filers will have to pay for credit counseling.
After Oct. 17, Colliersmith says, "It will be more difficult to file and more expensive. The new law is intended to make bankruptcy harder for people to file -- to discourage them from filing at all or to push them into Chapter 13." (Instead of wiping out debt, Chapter 13 sets a repayment plan for the debtor.)
To beat the clock, people are pounding the doors of Atlanta's bankruptcy lawyers. "We're swamped," says Colliersmith, president of the Metro Atlanta Consumer Bankruptcy Attorneys Group. "Our phones are ringing off the hook. We're probably seeing twice as many people as we normally do."
But many people won't even have enough money to hire a lawyer, says Atlanta attorney Matt Berry. He's gone to Congress to fight the credit card lobby. He told congressmen that if they took 100 case files off his shelf they would find that 95 of them were caused by a loss of job or income, a divorce or a medical disaster. Many of the cases, like Tony Paterno's, have two or more of those causes.
One of the most controversial parts of the new law is a means test that makes debtors provide proof of their income over the previous six months. That's going to be a major problem for Hurricane Katrina victims. Try finding financial records if they're under water.
"The new law will absolutely hammer those people," Berry says.
They may have no income at all now, but they'll be judged on what they made before the storm. A bankruptcy trustee may tell them, "You make too much money for Chapter 7," even if they no longer have a job.
Displaced Katrina victims are just now starting to contact Atlanta bankruptcy attorneys, but they face an additional problem: They'll have to establish residency before they can file here (though Berry may file some New Orleans cases anyway and then fight the venue issue).
For most hurricane victims, bankruptcy is far down on the list of things to do. "I'm guessing a lot of people are worried about having a place to sleep and enough to eat," Colliersmith says. "Bankruptcy will come a little later."
Filings don't peak until two to three years after a hurricane, according to a study by Robert M. Lawless, a University of Nevada at Las Vegas law professor. He found that bankruptcies in states hit by hurricanes climbed at more than 1.5 times the rate of other states for three years after the storm.
Consumer groups are asking Congress to delay implementation of the new law for Katrina victims. They're not getting much sympathy. House Judiciary Committee Chairman James Sensenbrenner Jr., R-Wis., quickly rejected that idea.
Actually, consumer groups and bankruptcy lawyers view Katrina as the lead dog in a pack of threats that could drag more Americans into financial ruin under the new law.
"There is a perfect storm for consumers right now," says Brad Botes, a Birmingham lawyer who heads the National Association of Consumer Bankruptcy Attorneys. "Oil prices are going up. Heating costs this winter will be extremely high. Every credit card company in the nation is doubling their minimum payments in the next few months."
In Atlanta, we face Delta's layoffs and salary cuts, military base closings, bad times at General Motors, the ready-to-blow housing bubble, and troubling trends at the state level: the highest climb in the number of unemployed in the country and the largest percentage drop in real wages.
Most Americans are like Tony Paterno. We don't think things can go terribly wrong. But the new bankruptcy law could knock untold numbers out of the middle class into a netherworld of unending debt, unable to rebuild their lives. For a preview, see the new movie Oliver Twist.
"You go from thinking of bankruptcy as part of a social safety net that supports honest but unfortunate debtors to a system that has a focus on detecting abuse and in the process often presumes abuse based on a mathematical formula," says Marjorie Girth, a Georgia State University professor who teaches bankruptcy law.
It's a moral issue. In a open letter earlier this year, Botes appealed to the Christians who control so much of the government today to extend compassion to people who encounter financial trouble: "As Christian attorneys, we strongly believe that it was never God's intention to create a society where indebtedness was a crime or a badge of dishonor."
But, lo, the hearts of the money-changers in Congress were unmoved. They just passed the law and cashed the checks from MBNA.
Senior Editor Doug Monroe, a reformed credit junkie, paid off $33,000 in credit card bills without going bankrupt, but adds, "There but for the grace of God go I." You can contact him at email@example.com.
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