Tougher Bankruptcy Laws Bite the Lenders

[True_Blue]

Source: Business Week

The latest lesson for lenders from the housing crisis: Be careful what you wish for. Banks and other financial outfits spent eight years and $40 million lobbying for sweeping new bankruptcy rules that would limit their losses from deadbeat debtors. But it turns out those changes, enacted in 2005, are forcing more troubled borrowers to walk away from their homes—even those who didn't take on risky mortgages in the first place. And that's bad news for lenders, which suffer financially every time they have to take a troubled property on their books.

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%. " 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."

Banks and other lenders probably never imagined such an outcome when they pushed for changes to bankruptcy rules. The courts were clogged, the industry argued, with consumers looking for any easy out from bills they could pay. As a deterrent, companies wanted to raise the bankruptcy bar.

They got what they wanted. Previously, anybody could file for Chapter 7, the quick and cheap proceedings that liquidate financial assets but not the home to cover debts and dismiss unpaid bills. Now only low-income borrowers qualify, and Chapter 7 doesn't stave off foreclosure.

Read more: http://www.businessweek.com/magazine/content/08_38/b4100036858078.htm?chan=rss_topStories_ssi_5

[question everything]

1. Coould not happen to nicer guys (nt)

[Journeyman]

2. From the article: "They got what they wanted." . . .

from Journeyman: 'Now they'll get what they deserve.'

[UpInArms]

12. from your keyboard

to reality - I hope that's true.

:hi:

[EC]

3. I knew this would happen

I can't understand why they thought people would just stay in an neverending cycle of paying out their whole check to save something that is worth less then they owe...it's just stupid...they wouldn't do it, why should anyone else?

[Swagman]

4. is this the end of capitalism as we know it ?

[intheflow]

27. I wish!

But it wasn't the end of capitalism when the stock market crashed in 1929 and ti won't be the end of it now. Unfortunately.

[Night_Nurse]

5. Yeah, but who bails the lenders out when they tank? We the taxpayers. nt

[Indi Guy]

6. Greed is not good for anyone -- including the greedy n/t

[Name removed]

7. Deleted message

Message removed by moderator. Click here to review the message board rules.

[Mandate My Ass]

9. Obscene is absolutely the best adjective to describe that bill

I also believe it had a name like "consumer protection act" or some such kafka-esque nonsense.

The CC companies had just had a record-breaking year in terms of profits when Joe rammed that POS bill through. I'm glad they're suffering (albeit a lot less than they deserve). :grr:

[ret5hd]

10. It must really hurt.

[Loudmxr]

8. You have to remember the other part of the bill.

The other part of the lege was that corporations could file BK much easier. So once again the right hand didn't know what the extreme right hand was doing. B-)

[tanyev]

11. Gosh, nobody could have ever anticipated that.

Idjits.

[mainegreen]

13. Ha ha!

[Javaman]

14. Not to be a wet blanket, but do we all remember who helped

write, sponsor and push that bill?

[xchrom]

15. i don't know about we -- but -- some of us do. nt

[Froward69]

16. yes yes we know

Biden.
remember however Biden is a Democrat and Democrats are more self aware and confident. much more confident enough to admit mistakes than republicans. as republicans view admitting to a mistake is a sign of weakness. whereas you and both know it is a sign of strength and wisdom.

Still is is sweet revenge to see banks and credit cards taking it in the teeth, for their greed and willingness to stick it too us.

[Javaman]

17. it is a double edged sword isn't it?

I am in delite over the credit corps taking it on the chin, however, and correct me if I'm wrong, I have yet to hear an "I'm sorry" from Joe.

[closeupready]

21. True, but Obama apparently wants to eliminate the means test.

So that will help undo some of the draconian impact of that bill, if he can get it through.

[Javaman]

22. Yeah, I wondered about just that when he mentioned "fixing" (or something like that)

the bankruptcy laws, a the convention.

[Froward69]

24. Granted this

is one of two issues i have a problem with biden on. (the other is rave) anywho I can also cut Biden some slack as his is the financial state. and he was looking out for the largest employer in his state. (as thats what senators are supposed to do) I do think he will go along with curtailing the bankruptcy bill with Obama as the lead. as Banks are looking at even steeper losses with the economy as it is, under the current rules.

like the article said under the old rules you could keep your house and continue to make payments.

[nolabels]

19. People that cannot afford to loose money shouldn't be lending it to people they don't know!

Looks like drive-up-capitalism will have to do some retooling. The more astute lending institutions that practice solid business will make out in the long run. Often treatment that doesn't really feel good at first turns out to be beneficial in the long run. They also say if it doesn't kill you then eventually it will make you stronger.

[elehhhhna]

18. the lawof unintended consequences. I could have told them this would happen.

If you think it through it's obvious.

[cascadiance]

20. New Bill to pass! Make Execs of these banks PERSONALLY liable for these debts!

They've been living high off the hog with multi-million dollar salaries not justified through any sort of capitalist reasons when their banks are failing. THEY should be made to pay for their failure. If they can get oodles of cash when they are successful, they should be sent to debtor's prison when they fail!

[hunter]

23. So what happens when most people no longer give a shit about their Credit Rating?

'Cause that's what happens when financial and political institutions go down this path.

What next, debtor's prison? Then the only people who borrow money are the same people who borrow money now for gambling, drug addictions, and other desperate causes. In a punitive lending system no rational person borrows money for something like a car or other consumer goods, and the greater economy simply whithers away.

[AndyTiedye]

25. We Could Change The Laws Back the Way They Were

Why not? The new bankruptcy law is a bad idea all around. Put the old one back.

Would there be any serious opposition to doing so at this point?
It's even screwing the banks who lobbied for the change.

[annabanana]

26. That is as it should be.

I'd like to see a BUNCH of re-regulation in several markets. The greedy and craven are overrunning most of the capital in this Country like a plague of rats.

[sarcasmo]

28. Greed coming back to bite Greed.

Kick and Nom for the banks and lenders getting their just dessert.