14 Sep Tougher Bankruptcy Laws Bite The Lenders
Tougher Bankruptcy Laws Bite the Lenders. This is the title of a recent article in Business Week. As I previously noted in my article, BAPCPA and the Rule of Unintended Consequences, Congress’ adoption of BAPCPA–the mean-spirited, poorly drafted and creditor-written bankruptcy changes that took effect in 2005–has had a number of consequences, not all of which were what the creditors expected when they spent over $40 million lobbying for the new law.
The Business Week article notes that because of the increased cost and complexity of bankruptcy caused by BAPCPA, a number of homeowners are opting to let their homes go to foreclosure, rather than save them through a Chapter 13. (Note that an experienced bankruptcy attorney, such as those on the Bankruptcy Law Network, can help steer you through these additional complexities without running afoul of their requirements.)
The article has several problems, however.
First, it states, “[The rules] are directly responsible for the rising foreclosure rate,” noting another report by investment bank Credit Suisse (CSR). When it comes to bankruptcy, CSR has a record of blaming BAPCPA for whats wrong in the mortgage industry. In March of 2007, it said that the increased number of Chapter 13 cases delayed lenders from receiving money it would otherwise get from foreclosures, causing the subprime mortgage meltdown. (See Mortgage Company Blames BAPCPA for Increased Foreclosures). Now, directly opposite to its statements a year and a half ago, it’s blaming the lower number of Chapter 13 filings on BAPCPA. I wish it would just make up its mind.
A more fundamental error, which I understand occurred during the editing process, occurs in the statement, “Now only low-income borrowers qualify, and Chapter 7 doesn’t stave off foreclosure.” The first statement is absolutely wrong, and the second is, at best, partly wrong.
Chapter 7 will, without question, stop a pending foreclosure. However, if mortgage payments are behind and not brought current in relatively short order, the mortgage company can file for relief from the automatic stay and resume the foreclosure proceeding.
As far as the ability of those who are not low-income borrowers to file, while the Means Test requires a comparison of your household income with the family income for a comparably-sized family, even if your income is higher, it is not the end of the discussion. Many deductions are available to get someone considering Chapter 7 under this limit, and I have filed successful Chapter 7 cases for people with annual household incomes of over $350,000.
This is a common misconception, and one that should be exposed for its error.
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