Tougher Bankruptcy Laws Bite The Lenders

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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Brett Weiss, a senior partner at Chung & Press, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his law partner, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute, the Bankruptcy Bar Association of Maryland, and the Civil Justice Network. He has been recognized as a “Super Lawyer” every year since 2007 for Maryland and the District of Columbia, and in 2011 received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, The United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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