How in the world do these UN-SECURED debts become SECURED?

[tightrope]

I read these posts about the poor souls in FL, who file Ch7 and have to go through the humiliation of someone rummaging through their closets, and others who have to worry about exempting a car or some other item which was purchased years before filing for BK, and it really infuriates me!

How is it, that this unsecured credit card debt, that practically was shoved down people's throats when the economy was "booming" (meaning most Americans were not only encouraged, but literally tricked into living beyond their means), can all of a sudden become "secured" in the eyes of the law?

And why should someone sell their free and clear car to pay a credit card debt that was not secured in any way by the value of that vehicle or by anything else?

[keepmine]

You're comparing apples and oranges.
The cc debt is unsecured.
But, when you file for bk protection you have limits on the amount of equity you can exempt in things like cars or homes or personal property.These exemptions vary by state. Some states will allow you to use the Federal exemptions.
This is why we always suggest people plan the bk before they file.

[BCA2009]

Keepmine is correct. You are confusing two different parts of the BK process. You unsecured debts do not become secured.

And you have to realize that you can't keep all of your wealth (paid for stuff). And walk away from your debts.

Although I personally thing you should be able to do just that. But that is a political/philisophical debate. If you could walk away from debt with out recourse except losing the collateral, banks would be more responsible about lending and we wouldn't have this bubble that has burst. But I digress.....

[blockhead]

Not sure if this was really talking about BK

I read these posts about the poor souls in FL, who file Ch7 and have to go through the humiliation of someone rummaging through their closets, and others who have to worry about exempting a car or some other item which was purchased years before filing for BK, and it really infuriates me!

How is it, that this unsecured credit card debt, that practically was shoved down people's throats when the economy was "booming" (meaning most Americans were not only encouraged, but literally tricked into living beyond their means), can all of a sudden become "secured" in the eyes of the law?

And why should someone sell their free and clear car to pay a credit card debt that was not secured in any way by the value of that vehicle or by anything else?

I understand your point. Forgetting BK, how is it that credit card debts are called unsecured but if you don't pay them you can find a lien on your house that has to be paid off to clear title if you don't file for BK and avoid it.

For years the pundits were telling us this was unsecured, and most people took that to mean, rightly or wrongly, that their property was not at risk.

[JackBondLove]

You are confusing specific asset securitization with general asset securitization. A secured loan - generally on a piece of real estate or a car - allows the lender to take possession of that asset via a foreclosure or repossession. An unsecured loan - or a secured loan, if the secured asset would have less value than the loan, in which case it becomes a de facto unsecured loan for that excess - allows the lender to take possession of any liquid cash account (including a wage garnishment) or attach a lien to any attachable asset (such as property) through a court action, which would force the owner to satisfy the lien before selling (or passing on via succession) the asset. Bankruptcy basically resolves the court action into a one nice neat court case, with the added benefit of introducing exemptions.

[Dst1]

You are confusing specific asset securitization with general asset securitization.

This. A good explanation JBL.

[tightrope]

I’m not comparing apples with oranges or confusing anything, whether in BK where only unsecured debt is involved or a law suit by the creditor.

I’m simply saying this…

Unsecured creditors have no immediate recourse after default. They must sue you in court and obtain a judgment to convert their debt to a secured one, so they can collect against your “general” assets.

And this is how the judge should handle the unsecured creditor in court.

J = Judge
V = Visal (weasel), unsecured creditor

COURT WILL COME TO ORDER!

J. Is this debt secured by a specific asset?
V. No, your honor.

J. So because this debt is unsecured, would I be correct in assuming that extending such unsecured credit would expose you to a higher risk of default?
V. Yes, your honor.

J. Would I be further correct in assuming that in order to offset such higher risk, you charged the borrower a higher interest rate?
V. Yes, your honor, a poultry 25% and when in default, a measly 30%.

J. I see... So to summarize… You knowingly extended this unsecured amount to the borrower, and to offset your potential losses you charged her a very charitable interest rate of 30%, and now you want me to make this debt secured so you can force her to sell her left kidney to pay back your unsecured debt? Am I correct?
V. Oh, yes, your honor!

J. I see... Well, your argument seems reasonable, and I’m ruling in your favor, except for making one small adjustment to the amount owed, which seems only fair to make.
V. Oh yes, your honor! Very, very small! (rubs hands)

J. Ok, since you’re asking me to convert this unsecured debt to a secured one via a court order so you can collect and incur no losses, and since you always knew you could do so at any time even before extending the credit, then after all, your risk was not that much greater than that of the secured creditor in the first place, was it?

V. Bats his eyes, not knowing what to say, as droplets of sweat start puddling on his forehead.

J. So to reflect the fact so successfully argued by you, that the aforementioned debt wasn’t unsecured after all, I will recalculate the amount owed to you by retroactively rolling back that poultry 25% interest rate premium that you extorted, I mean charged based on this debt being unsecured, to a still very generous 6% rate, and you can collect the difference from the borrower.
V. Dead silence… visions of FICO, FAKO, MACO, billions of “preapproved” solicitations sent, present value, lost bonuses and missing the mud spa in Tahiti go through Visal’s head.

J. Oh, guess what, Visal!? After doing all the adjusted calculations, it turns out that not only does the borrower not owe you any money, but you owe money to the borrower!

CASE CLOSED!

So yes, what I am saying is that if the banks charge you exorbitant rates to mitigate the higher risk of the unsecured debt, then this unsecured debt should stay unsecured and not be converted by the courts into a secured debt.

And if that means that the banks will have to do their due diligence before giving high limit credit cards to every tom, dick and hairy (pun intended) then so be it… We will be much better off in the long run as individuals and as a country living within our means.

.

[SMinGA]

So you're saying people should be able to buy a bunch of stuff, file bankruptcy, and be able to keep ALL their stuff even if its worth a whole lot - as a way to stiff the creditors?

Sorry, but that is not how it works. If a BK filer owns more than their state (or federal if they have option) exemptions allow, they don't get to keep it all free & clear.

[blockhead]

There used to be a max percentage rate for credit cards set by the states before a 1978 Supreme Court Decision that let 'national' banks set rates based on the max allowed in the state they are incorporated

[Dst1]

tightrope.

There are judges who would agree with part of that logic. Even I agree that as a matter of policy we don't hold creditors responsible enough for their lending practices.

But that's not the law. Period. It isn't what the law actually is. Even when the law is wrong it's still the law, just like your mother is still your mother drunk or sober.

[tightrope]

So you're saying people should be able to buy a bunch of stuff, file bankruptcy, and be able to keep ALL their stuff even if its worth a whole lot - as a way to stiff the creditors?

Sorry, but that is not how it works. If a BK filer owns more than their state (or federal if they have option) exemptions allow, they don't get to keep it all free & clear.

You missed the whole point. The only ones who are being stiffed are the consumers!If the creditor charges you an exorbitant premium to justify the of the extended credit, then their recourse to collect should be limited.

Why?
Because the whole justification for these exorbitant rates in the first place, is their argument that they are necessary to mitigate the higher risk of losses on this unsecured credit.

So if they are allowed to collect the entire accumulated balance, then in effect, they were never exposed to any higher risk than a secured creditor would be, and the extra interest rate premium paid by you should be deducted from the final payment amount.

These unsecured lenders want to have their cake and eat it too. They want to charge you exorbitant premiums on their so-called unsecured debt, while still having the right to collect on it as if it were secured.

The laws, as they are currently written, are facilitating this scam perpetrated by the banks on the consumers by converting this unsecured debt to secured one, and allowing them to collect the entire accumulated balance.

What the judges across the country should do is stand up to this thievery and say,

.