The Free Market Solution to the US Household Debt Problem: Debtors’ Prison

[NVMojo]

no kidding ...what an option ...

September 17, 2006

As the real estate bubble deflates and credit card interest inflates, it’s time to consider a dynamic new engine for America’s service economy—debtors’ prisons, the next logical step in a free-market economy in which easy credit has freed more us from the burden of saving and allowed us to experience “the good life.” But unfortunately many of us have failed to take responsibility for our financial choices. We borrowed too much and then declared bankruptcy, blithely erasing our obligations and leaving our lenders holding the bag.

Concerned for the perilous position of lenders and their shareholders after hundreds of billions of dollars were lent to millions of households with limited savings and assets, Congress passed The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Under the act, many debtors who cringe every time the phone rings will no longer be able to get a “fresh start” with a Chapter 7 bankruptcy. If these debtors make more than their state’s median income, they will have to declare a Chapter 13 bankruptcy, which requires them to repay debts as they continue to earn.

Some of the bankrupt will do the right thing under Chapter 13 and pay what they owe, perhaps for the rest of their lives. But others, predictably, will not. They will shirk their debts simply by ceasing to earn. “You can’t get blood from a stone,” they will mutter to themselves.

Consider, for instance, the many American homeowners now struggling to make rising monthly payments on their adjustable rate mortgages, or those who took out second mortgages in the expectation of continually rising home values. If they have a financial setback and can’t make their payments, they may lose their homes. And if, because of falling real estate prices, what they owe exceeds the value of their homes, their problems are compounded because they have a so-called underwater mortgage.

Before bankruptcy reform, consumers could cure underwater mortgage debt in a Chapter 7 bankruptcy. But that’s not so easy anymore, thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Many will have to keep paying off underwater mortgages on homes in which they no longer live. Meanwhile they will need to be taken in by friends or family, or rent shelter.

Not unreasonably, many landlords will not rent to those who have recently gone through foreclosure or bankruptcy. Finding an affordable rental unit may be even more difficult in metropolitan areas where the recent widespread conversion of apartments to condominiums has great reduced the available stock of rental housing. And since many debtors unable to obtain rental housing will also have lost the cozy vehicles in which they might otherwise have lived, and lack friends or family to take them in, a considerable number will become homeless.

more...

http://www.itulip.com/forums/showthread.php?t=434

[The Deacon]

1. I Predict

An unprecedented increase in home fires.

[acmejack]

2. You can't rent without good credit.

Especially in a renters market, where the landlords will want the best scores. House fires indeed.

[3waygeek]

3. Apparently, Georgia has already

re-established debtor's prisons.

[NVMojo]

4. good grief!!!

[AnneD]

7. What goes around comes around...

I had to double check my facts but yes indeed Georgia was founded as a place for debtors to rebuild their lives (thank you Mr Oglethorpe). It was a debtors colony. I am sure there are some old laws still on the books about that! You know how some of these laws get left in dusty tomes.

[fasttense]

5. Georgia solution is to imprison theses slackers, send them off

to work the McJobs and take their pay checks while charging them for prison expenses. They never get out of debt because they can't keep up with the cost of debtor's prison. This is a pilot program for the rest of the nation. We will have a cheap labor pool and slackers will shut up and pay what they owe.:sarcasm:

[Warpy]

6. Bankruptcy deform only supplied an extra hoop to jump through

for most debtors out there. The income floor for the new bill is $40,000/year, and most bankrupt people will be making far less than that, that's why they're bankrupt. For the rest, those at the lower end of the pay scale will have to provide all the paper they can come up with, an examiner will futz around for a few weeks, and then they'll be allowed to file under Chapter 7. If they haven't defaulted on their mortgages along with the credit cards, they'll be protected.

This deform bill will affect mostly those folks who have been able to maintain a middle class income of $75,000 on up but who have insisted on a million dollar lifestyle or who own small businesses, been unable to get health insurance, and have run up a massive debt on health care. The middle class will get nailed on this one, filing under Chapter 13 and living on a poor man's income while the rest is scooped up to pay their debts, probably for the rest of their lives.

In other words, the working class won't be screwed by this. It's an attack against the dwindling middle class.

[NVMojo]

8. typical Bush strategy ...too bad Reid and other Dems fell for it