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.
Say a guy burns his house down because he threw a lit match into the trash.
You tell him “should have made sure the match was out.”
That doesn’t “unburn” his house, nor does it rebuild it. He already know what he did wrong.
At best your statement is assumption. Some people just have no clue about financial matters and need the lesson repeated over and over.
I've seen people refinance over and over to payoff mounting debt and disregard anyone saying "Dewd, your doing it wrong! You need to do this, this and this instead."
Either way, even telling them that doesn’t fix the situation at hand. “Dewd, your doing it wrong! You need to do this, this and this instead.” is different than “you shoulda done this” and is a reasonable thing to say.
You tell him “should have made sure the match was out.”
That doesn’t “unburn” his house, nor does it rebuild it. He already know what he did wrong.
No it doesn't, "unburn" it however his individual distribution of wealth via "insurance" by having personally bought via forethought, will maintain his comfort in coping with his demise.
PSSST, guess what, insurance is bought and paid for only by the one who needed it. ; )
Yes. And someone telling him the obvious statement of “shoulda made sure the fire was out” is a non-factor in that entire equation, and, if anything, just makes the person saying it look like an ass to the other person.
:)
Yes...and insurance CLAIMS are paid for by all policyholders...
I thought most of the "reforms" affected individuals not corps?
Insurance is there and lucrative as a way of life which one pays for.
Apparently fraud is as much of life as insurance is anymore and policy holders are uneasy with via rising costs of peace of mind.
And that, my dear folks, is why the democrats are going to win this year. Healthcare is a sleeper right now, but it's going to play a much larger role in this election than we think it will.
Stuck between a rock and a hard place - cancer and bankruptcy. :(
Nothing coincidental about it. The banks, once they got their reforms, knew that either you pay or they get the property. It was a no lose situation for them.
Now, no only do they get the property but they get federal funds to keep them afloat.
Bush couldn't wait to sign this. Makes me wonder if he's EVER had to work for a living?
The problem is alot of these folks don't think they are doing it wrong because its on a TV commercial and so easy to do. Just call: 1-800-you'llbeindebtforever operators are standing by!
So when do you tell them such? Apparently they have no clue they are doing it wrong. I mean they are happy about getting that new loan from InDebtForeverTree.com.
They would if there were any equity, which in this market is unlikely.
What insurance company? So I know never to use them. You can Private mail me if you like.
Exactly. Others assume that anyone who owns a small business can get business credit. Often these people have to use their personal credit, which can then cause the individual problems if the business goes under.
What is good for the goose is good for the gander. Corportations should play by the same rules.
You obviously don’t remember the 70s. A “normal” long-term mortgage rate was anywhere from 11% to 19% before Volcker finally relented and started dropping FFR.
My first mortgage was a 12.something percent.
Many small business owners have had to put their own credit on the line, in order to secure credit for their businesses. If the business defaults, the finance company goes after the personal. I know that defeats the whole purpose of the "corporate veil," but it's reality these days. I know GMAC asked me for my personal credit info, the last time I purchased a company vehicle.
Born with a silver foot in your mouth ? If I had to describe you the word “prig” comes to mind as the first adjective.
Best wishes my FRiend for a full recovery.
In '00 I died, was place on a bed of ice to bring my body temp down to 65 degree's, had my heart removed, hooked up to an artificial heart for 8 hours while my heart was repaired and then rejoined to my body and when I SURVIVED, about 6 months later I'm as healthy as can be!
Life in the USA as a free nation is good and well appreciated. I "ain't" in financial bankruptcy because of it however.
Mindfully prepared for the worst...perhaps a bit.
The Thoracic surgeon alone was $130,000 for 6-8 hours of work.
Am I complaining about the cost of saving my life?
He!! no!
You wouldn't believe the number of ways an insurance company can deny claims. I could write a book. And every time you get a treatment or anything remotely significant, you sign a paper saying that you are personally responsible for the bill, so when the insurance company balks, you not only have to worry about your cancer, you have to worry about your financial siuation, as well.
If Republicans don't do something, we're going to get government health care. People are fed up. I am.
We've been paying into group healthcare for almost two decades, but when I needed it, I had to fight for every single claim. And since our group policy is with a fairly small company, the entire company has had their premiums go up substantially.
So, now, I worry about my husband losing his job because we had the most claims on insurance last year. Thank God he's an excellent employee.
This is no way to live.
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