Posted on 05/30/2008 1:13:58 PM PDT by nicola_tesla
The Debt Slave Act, better known as the Bankruptcy Reform Act of 2005 has at long last blown sky high. We will get to "how" in just a moment but first let's review some of the provisions of the bill. Lenders asked for and received everything on their wish list as follows:
Wish List
* A strict financial means test that may prohibit many debtors from filing a liquidation bankruptcy under Chapter 7;
* A requirement that all debtors must receive a briefing from an approved credit counseling agency at least six months before they can file their bankruptcy case; Note: Check with your local bankruptcy court to determine if they will waive the time restrictions in the beginning months.
* A requirement that debtors take an approved class on debt management techniques before they receive their bankruptcy discharge;
* A provision making it easier for a court to dismiss a bankruptcy case outright or to convert a Chapter 7 case to a Chapter 13 case; and
* A provision permitting a court to impose sanctions on attorneys, or even on debtors, for filing a Chapter 7 case that is dismissed or converted to a Chapter 13 case.
After the fairy godmother (Bush) signed the bill written by industry lobbyists and passed by Congress as "reform", banks and lending institutions went on a credit binge of previously unimaginable proportion. The most ridiculous abuse of common sense was the so called "Liar Loans" more commonly referred to as "Stated Income Loans".
In addition, much of the subprime mess and the HELOC (home equity) can be attributed to lending institutions behaving as if Sixteen Tons was the new state of being.
You load sixteen tons, what do you get
Another day older and deeper in debt Saint Peter don't you call me 'cause I can't go I owe my soul to the company store...
Liar loans are now blowing up. I talked about this recently in "Bring On The Alt-A Downgrades".
Liar Loans Discharged In Bankruptcy
Debt Slavery is now in reversal. Inquiring minds should consider this extremely significant ruling: BK Judge Rules Stated Income HELOC Debt Dischargeable.
Tanta writes:
This is a big deal, and will no doubt strike real fear in the hearts of stated-income lenders everywhere. Our own Uncle Festus sent me this decision, in which Judge Leslie Tchaikovsky ruled that a National City HELOC that had been "foreclosed out" would be discharged in the debtors' Chapter 7 bankruptcy. Nat City had argued that the debt should be non-dischargeable because the debtors made material false representations (namely, lying about their income) on which Nat City relied when it made the loan. The court agreed that the debtors had in fact lied to the bank, but it held that the bank did not "reasonably rely" on the misrepresentations.
I do not always agree with Tanta, but I would say that I do over 85% of the time. And I certainly agree with her post this time. She is correct on two counts:
1) This was an extremely significant ruling 2) This was the correct ruling
What is interesting to me was some of the comments, some of which defended the lenders. I have zero sympathy for the lenders and the following comments are in line with my thinking.
Tanta Writes:
Nat City gets zero sympathy for me on this one. Talk about a case of "fool me twice."
Jas Jain writes:
Tanta: “I argued some time ago that the whole point of stated income lending was to make the borrower the fall guy: the lender can make a dumb loan--knowing perfectly well that it is doing so--while shifting responsibility onto the borrower, who is the one "stating" the income and--in theory, at least--therefore liable for the misrepresentation.”
Bingo: And the reason this was carried to such an extreme was the debt slave act of 2005 in conjunction with absurd interest rate policy at the Fed, the Fed's direct sponsorship of ARMs and derivatives, and the "Ownership Society" of the Bush administration. All of which are also blowing sky high right now.
Uncle Festus writes:
A few random thoughts on things which have been raised in these comments:
1. I don't think that the lender will appeal this, because at this point it's not "binding" precedent on any other court (though it will be cited as "persuasive" precedent in future similar disputes). I think the lender will not appeal it because there is a real risk that the higher court (either the 9th Circuit itself or the Bankruptcy Appellate Panel) could affirm it and it would then become binding on the entire 9th Circuit, which encompasses the whole West Coast plus Arizona and Nevada. The money at risk in this individual case (if there is any at all) is minuscule compared to the risk of this becoming the law in the largest Circuit in the country.
Binding or not, the die is cast. Furthermore, under a Democratic Congress and Obama as president the entire bankruptcy reform act is likely to be rewritten.
As ye sow so shall ye reap.
Banks and lending institutions are now bearing the fruits of their attempts to make debt slaves out of consumers. I salute the ruling of Judge Leslie Tchaikovsky.
Gee, I wonder what the "after bailout" rate will be?
Still another tax created by government....
Bankruptcy law went from too easy to honestly a little too strict. This proposal (the HELOC thing) is just crazy though unless it means losing the house, which is what current law says.
I’m thinking 70s - anywhere from 14-20%. I wonder what the credit cards will charge ?
If I had cc debt in this environment I’d pay it off asap.
Why?
If one has CC debt in the first place without payment in backing, obviously thought and concern has already been lost.
I have a good friend going thru a chapter 13 bankruptcy right now - price of diesel killed his business (trucking). Not much income, but he can’t sell his house either to get at the equity he has left, so he has to file a 13 to protect the equity he does have.
What a mess.
What would “payment in backing” mean ?
Yeah, now individuals are going to have to think for themselves, OH, THE HORRORS!
This is just lien stripping under another name, which was allowed prior to bankruptcy reform. The primary lienholder holds the house as collateral. HELOC is a second, they wouldn’t get anything in the event of foreclosure anyway.
First, I’ll say...”walk a mile in another man’s shoes.”
Secondly, my point is really this:
The law in effect now came at the same time banks started giving away loans to people that couldn’t pay them back...it seems odd that happened at the same time and now people really have no recourse. If someone can’t pay, THEY CAN’T PAY. You can’t “make” the money appear to pay a bill simply by strongarming someone who has a family to feed and take care of.
It was too easy before. It’s a bit too restrictive now...some of the calculations used are ridiculous. I can’t remember what they are, but something like saying you ought to be able to pay for shelter, food, fuel, clothing, necessities for a family of four on $800 a month and all that...just too crazy. I wouldn’t know as I haven’t personally seen what the numbers used are, it was on a thread a year or two ago.
Some Freepers are quick to assume anyone with a bankruptcy, be it Chapter 13, 11, or 7, is a deadbeat. That’s not true at all.
Yes, SOME are. MOST are not. Things happen. People can do irresponsible things. People can also lose income, or lose jobs, or get sick, or be taken advantage of, a plethora of things.
Some Freepers are quick to assume anyone with a bankruptcy, be it Chapter 13, 11, or 7, is a deadbeat. That’s not true at all.
Yes, SOME are. MOST are not. Things happen. People can do irresponsible things. People can also lose income, or lose jobs, or get sick, or be taken advantage of, a plethora of things.
How about the corporations bankruptcy, do the same rules apply. I doubt it. Let see how they treat the Airline industry.
Well...that’s actually my point...
Those hard working people should have been more thoughtful with their hard earned labor and made a personal decision for their own good before requiring someone else to make a law or decision for them.
You’re right, but, last time I checked, a time machine hasn’t been invented.
One of my favorite sayings is: “Woulda, shoulda, coulda don’t mean sh*t.”
Bankruptcy has existed since the beginning - it’s in the Constitution. Not saying it should be easy to do or that you should be able to do it for any reason you feel like, but the Founders put it there.
No such thing as liar’s loans ... it’s FRAUD clear and simple and should be fully prosecuted. Note that much of the paperwork was sent via hard copy, snail mail, via US Post Office. That adds the charge of mail fraud.
Sure it does.
"Woulda, coulda, shoulda" by definition is a lack of "appropriate vision, not achieving via lack of vision and then reminiscing about one's blindness.
Here’s what I mean by that statement.
If I come to you with a problem, and you say “you shoulda blah blah blah”...
I ALREADY KNOW WHAT I SHOULD HAVE DONE. I DIDN’T. NOW I HAVE A PROBLEM.
That’s all I mean. Telling someone what they SHOULD HAVE done doesn’t do a damn thing about their current situation, because, unless they’re a total moron, they already have figured out what they should have done.
That goes for finance, personal relationships, unprotected sex, you name it.
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