Tougher Bankruptcy Laws Bite the Lenders

[banca rotta]

http://www.businessweek.com/magazine/content/08_38/b4100036858078.htm?campaign_id=rss_daily

[banca rotta]

I always thought they would hurt themselves with the new laws that they paid off congress and bush to write.

I know so many friends and relatives that are falling behind on their mortgages and paying their credit cards on time thinking that they have no choice because of the new laws.

If you have to pay anything (as most of us here know) it should be your food, clothing and SHELTER first and CC's should go to the bottom of the list.

This is probably a big reason why the mess is spilling over to the prime home borrowers.

Hopefully these people will educate themselves, keep the house and tell the cc creditors to f^#$ off! It will reverse the housing trend sooner.

[chloe0724]

I'm a little confused by this argument. Even if the old law let higher income people file a 7, if you can't afford your mortgage payment, even with your credit card payments gone, then how would you keep your home? A 13, even with the payment plan, gives you the ability to pay only a percentage to unsecured if any.

I still think it's a solution, it's just a more complicated one.

[banca rotta]

I'm a little confused by this argument. Even if the old law let higher income people file a 7, if you can't afford your mortgage payment, even with your credit card payments gone, then how would you keep your home? A 13, even with the payment plan, gives you the ability to pay only a percentage to unsecured if any.

I still think it's a solution, it's just a more complicated one.

I think what they mean is what I posted earlier that forclosure is easier for some people since these people think they cannot file. My cousin for example is deep in cc debt and is scared that "since the new laws took effect he can't file for chapter 7 anymore so he's stuck with his cc debt forever" and can't afford his mortgage. I'm sure there are millions that feel the same way so they are walking away from their homes just to make cc payments.


This is a big myth:

Before the new rules kicked in, many consumers could find debt relief—and keep their homes—by filing for bankruptcy protection. Now the process is much more onerous and expensive and the benefits more limited, making foreclosure seem appealing by comparison. A July paper by David Bernstein, a researcher at the U.S. Treasury, found that 800,000 fewer homeowners have filed for bankruptcy since the rules kicked in. A quarter of those people, says the report, have likely had to give up their homes as a result—boosting foreclosures nationwide at least 4%. "[The rules] are directly responsible for the rising foreclosure rate," notes another report by investment bank Credit Suisse (CSR). Counters Philip Corwin, counsel at the trade group American Bankers Assn.: "These studies don't stand up to scrutiny."

It's still easier to file bk then to foreclose. Even if you walk away from your home you are liable for the deficiency. The only time it pays to foreclose for a "prime" borrower is if you are really upside-down or lost most of your income.