If you're like most people, the stress of your financial situation is keeping you up at night, worried about bills, fearful that you will lose your home to foreclosure or your car to repossession. Filing for bankruptcy brings a sense of relief. Contact us to learn about your options!


Study finds that 2005 Bankruptcy Law is increasing foreclosures

December 9, 2008House Foreclosures, NY BankruptcyNo Comments

I recently read an article in Consumer Bankruptcy News that reported that the ‘New’ bankruptcy law enacted by Congress in 2005 had increased the number of foreclosures.  The increase in foreclosures is almost entirely responsible for the economic mess that the country is in today.

Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.  After carefully reviewing the new law, I concluded that there was nothing resembling ‘consumer protection’ at all in the law, but rather that the Act was drafted for the sole purpose of making it more difficult and expensive for working individuals to file bankruptcy.  In my opinion, the new law appeared not to have been drafted by Congress, but by attorneys for the credit industry.  I expected this new law to be nothing but trouble.  According to this recent study, my fears were well founded.

The study asked whether changes in the bankruptcy laws contributed to the current foreclosure crisis.  U.S. Treasury economist David Bernstein and others believe the answer is YES.  The study, conducted independently of the government, suggests that there are two ways that the new bankruptcy law may have increased foreclosures:

1.  The increased costs and complexities of the new laws may have encouraged some homeowners to walk away from their houses and mortgages, rather than trying to save them in a Chapter 13 bankruptcy. With this, I certainly agree.  In my opinion, the only thing that the new law accomplished is to make it much more difficult and expensive for ordinary Americans to seek bankruptcy relief.

2.  The more stringent payment terms under Chapter 13 may have increased the number of homeowners with large payment obligations that they could not meet. Again I agree.  Increased payments to the credit card companies, less money to pay your mortgage.

So, it looks like the government did a poor job a trying to fix a perceived problem, creating a bigger mess.  I for one will be encouraging the new Administration and Congress to make consumer friendly amendments to the bankruptcy code, such as allowing homeowners to modify their mortgages in a Chapter 13 in order to save their homes.  More on that in blogs to follow.

Matt Hughson, Zifflaw Bankruptcy Attorney