15 Aug NY Times Weighs In on BAPCPA
Thanks to Sheryl Shelin of the South Carolina Bankruptcy and Consumer Blog, I read this editorial from the New York Times. The editorial notes both that the 2005 change in the bankruptcy law (known as BAPCPA) has discouraged homeowners’ use of bankruptcy to protect their homes, and other problems inherent in the law:
The new law’s expensive and cumbersome requirements have already discouraged some hard-pressed homeowners from seeking bankruptcy-court protection, even in the face of dire circumstances such as spiking monthly payments coupled with job loss or medical expenses. Of the debtors who do enter bankruptcy proceedings, many are required to restructure their debts — negotiating with lenders to lower loan balances and stretch out repayments — rather than being allowed to liquidate them.
But here’s the trap: The restructuring process, known as Chapter 13, prohibits the bankruptcy court from modifying the repayment terms of most mortgages on a primary home. So even under a restructuring plan, bankrupt homeowners must still repay their mortgages in full or lose their homes.
(Snip)The 2005 bankruptcy reform should have recognized the riskiness of today’s mortgages by eliminating the outdated lender protection. But during the reform effort, fairness took a back seat to a baser aim — simply, to make it more difficult for consumers to gain a fresh start through bankruptcy. The result is that lenders who abandoned caution during the housing boom are protected while the law gives no aid to borrowers who were enticed, and at times deceived, into risky mortgages.
Like Sheryl, I am leery of the “no protection” theme, which may again discourage those who could benefit from bankruptcy from seeking the help that might allow them to save their homes. At the same time, it’s nice to see a call to action from the Times.
I agree with Sheryl (as usual):
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