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.
I agree. But, the other point is the bank should have verified income before disbursing the check. That was their obligation. As the article said, the banks hoped to pass the entire blame onto the borrower of its lack of due diligence.
Hardly, however I have a great appreciation for what I have that has been labor intensive in achieving.
He’d signed some personal guarantees - many small, new businesses do when starting out, because no one will give credit to an unknown corporation (unless they don’t need the money :) ).
Let’s see - EGPWS will say you just shouldn’t have gotten cancer at all if you couldn’t plan for it.
And insurance companies are a lot bolder about denying claims just seven or eight years down the road.
What would you do if you were a single woman too sick to work, but your treatments were denied because your cobra payments just ran out? I sat with this woman while she completely broke down.
And I'm very happy that you are alive. :) I'm happy to be alive as well, but after paying insurance for almost thirty years, I shouldn't have to feel like a criminal for filing claims. I don't feel "lucky" to have been through that experience.
Alas liberal political fodder again....
Yep. Same thing happened to my friend. What nobody wants to talk about is that it also opens you up to liability if you get sued.
That should be “over two decades.” About twenty-six or twenty-seven years. Time flies. :)
I’m sorry to hear all that but I agree, you are not alone in that situation.
Recover and prosper.
If you have good credit, the rate might be lower since banks will be more cautious. and have to compete more for good customers.
They could make a movie out of it. Are you serious or Science Fiction.
huh?
Who wrote this?
First off, from day one the “class” was a joke. Obviously the author knows nothing about the fact the class is a 30 minute telephone seminar.
Second the author does not know about the lien stipping of unsecured mortgage loans under the old vs the new code.
Third what the heck is the author trying to say? hence the “huh”? Was there a ruling? Has the law been shifted or did one judge make a ruling? Where is the ruling.
The author misses the point of stated loans. Stated income loans were for those who were self emplyed. Under the PREreform rules you had to have a larger deposit to make the stated loan. Usually 15% to 30%. After reform made the ENTIRE LOAN nondischargable, the banks were free to inflate the value of the house 15% to 30% and thus have a full value loan with the borrower having a second mortgage on the unsecured part.
The “delusion” part is the bank thinking they would be covered over time as the home value went up to meet the inflated valuation. (how many banks had “mandatory lists” for appraisers who would play ball, wink wink.)
The author needs a writing class.
Thanks! My recovery has gone great. With two beautiful grandchildren I feel like my life is quite rich these days. :)
I question whether you have the slightest understanding of contracts. Contract law is not liberal or conservative - it is.
If EITHER party does not perform due diligence, they cannot claim harm later - AS THE JUDGE FOUND.
EGPWS says it can happen to anyone including EGPWS and when I met my demise, I was prepared for it.
We all get old and die some day, however silver spoons will always be available and outlive all of us. (like it or not)
PSST, where does that spoon come from?
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.
So?
newsflash, self employed people do not always have “verifiable” income because they have small corporations that become their expense vehicle.
A person taking LEGAL deductions can dramatically reduce income to very low levels but live a very comfortable life.
The issue is the use of inflated valuations to allow banks to have virtual 100% loan to value loans.
If you want to “punish” the banks then restore the pre-2005 bankruptcy rules allowing for lien stripping. The secured portion of the loan is reduced to the current value of the house. Since this is court approved with the supervision of the bankrupcy trustee, the valuation games are not so available to the bank.
Define dead beat.
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