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.
Serious and today am as healthy as can be at my age! (Life is good)
My only drawback is I didn't see a light at the end of a tunnel, I am strapped with med's and I get questioned when I pass through TSA at the airport at times for the sternum staples are still with me.
That's a tough nut to crack, however anyone who expects return without personal effort and then complains is a start.
This is FR however and not the DU. ; )
Your a modern day Frank for sure. Wish you the best of luck.
Alas, slavery revisited...
In many cases it was, in fact, solicited fraud.
It's all true.
I don't live on wishes and luck however.
Thanks for your wishes anyway my FRiend.
The credit merchants begged for the foolish provisions, now let them reap a pittance and spoiled account files that age without any income.
There is difference between that man with the wool shears over that a way, and the wolves thereabouts. The Foolish Lending Law was just the sheet of tickets to the Predators Ball.
Sign me,
--Shepherd.
Well, the aged accounts float from collection agency to collection agency -- seconds, thirds and beyond. The hounding won't stop since it is so cheap to do, and the collectors are established without startup costs, hardly -- it is well into the age of automated communications and plenty of demographic information readily accessible and cheap so you can track them.
In a file of a few hundred thousand accounts, there will be some where the debtor or someone in his household comes into money -- so a cheap hounding of years-old non-paying accounts nearly always turns up some dollars in the mail.
Really?
And their directive for promoting this is...(you place the answer)
Had a friend who got into money troubles due layofs, wanted to keep his house but had an ARM due to increase a lot, went to the bank to work out a more payable arrangment, bank told him to get lost, lawyer told him to walk away from the house, after missinga few payment he was contacted by the same bank asking what the problem was and they would house payment easier, friend told THEM it was now their house and to get lost.
Here is what I mean -- collections is so cost-effective these days, automated and able to be persistent a long time at low low cost, that the banks -- so I think -- figured that they could risk far more -- loan without due diligence, because even a rock can be squeezed for blood, eventually, these days. As long, that is, as the debt wasn't easily marked "BANKRUPT".
I remember the discussions here before the law was passed. Not the details, just the summary. As I recollect the key thing was that creditors with way outscale loan balances for present income would no longer be able to clear the decks, to be freed of all debt. Instead they would be forced into what becomes almost unlimited term indenture, of monthly payments that eat up the bulk of income after taxes. A lot more garnishments too. Quite the foolish way for our generation to treat our future!
I knew we we’re heading for trouble when I had two co-workers file for bankruptcy, kept their homes, moved to new homes and rented or sold the other one at the same time they got their debts lifted......how can you allow a person to have two homes and a motor home,boat, 4wheelers, etc and still let them file bankruptcy?....its a mockery....
I know “stuff” can happen....but we don’t go out an buy things we WANT but can’t pay for....we don’t have fancy stereos, lap tops, new cars and a new boat, or take fancy vacations....gee, we live within our means.....so I find it hard to sympathize with bankrupt people.....we could file bankruptcy too if we weren’t so dang responsible....
I don't think the RAts are going to win everything....the PUbs will hang in there...some people say that the Pubs actually have more guts when they are in the minority ....so we will see....
I just don't want anyone touching my hard earned retirement money because I'm white and don't deserve it...
One of my favorite sayings is: “Woulda, shoulda, coulda don’t mean sh*t.”
Hey...Not fair!
I have one adult dtr who is on Medicaid...she needs expensive treatment and if anyone thinks that govt insurance is the answer, they are sadly mistaken....the Medicaid people are several months in arrears in paying for my dtrs treatments...I think the doc continues to do it only because he knows me....otherwise, my dtr might not get the treatment and she could end up in a hospital...
That’s not what I’m talking about...although your example DOES happen too.
Employees are bound to protect stockholders investments - that is not liberal fodder. They can’t just give away the bank, you know. :)
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