Predatory Lending Stops; Bankruptcy Filings May Double

Borrowers would rather refinance their homes, even on predatory terms, and pay credit card debt instead of filing for bankruptcy protections. There is pride and optimism. There also is shame, guilt, worthlessness, and failure. (Click here for my previous post on Four Reasons Not to File Bankruptcy.)
Bankruptcy filings understandably doubled during the three months before the reforms became effective in October of 2005. They understandably went to near-zero for the next three months, but they have not come back to historic levels. In fact, they are only at about half of pre-reform levels.

Some say this is because of false information that bankruptcy is no longer available. I believe the reason is the continued increase of subprime lending in 2006 and the first part of 2007, based upon new exploding adjustable interest mortgages and an increase of predatory (fraudulent) practices, but the recent end of that industry will lead to a resumption of bankruptcy filings at the former amounts. There’s just nothing more to refinance for paying off the credit cards.

Professor Charles J. Tabb, University of Illinois College of Law, in the recent December/January issue of the American Bankruptcy Institute Journal (sorry about no link; only subscribers have online access), surveyed revolving consumer debt (mostly credit cards) and observed a slight drop since 2002 following a quadrupling from 1983 to 1999. (Click here to see my March 3, 2007 post on his article.) He questioned if the doubling of mortgage debt from 2000 to 2005 might suggest further increases. I don’t think filings will increase from the doubling of mortgage debt itself, but rather from the exhaustion of home equity as a way to pay credit card debt.