Bankruptcy Reform Backfiring on Banks

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Thursday, November 8, 2007
Bankruptcy Law Backfires On Banks

Banks tried to stick it to consumers by changing credit card laws, instead borrowers are sticking banks with depreciating houses.

In 2005, banks pushed agressively for a revised bankruptcy code that no longer allows people to walk away from credit card bills. The result: the new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages, rather than stop paying their credit cards.

Richard Fairbank, chief executive officer of Capital One Financial Corp, tells Bloomberg that "Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards."

"What we conclude is that people are saying, `Honey, let the house go,'' ' but keep the cards, Fairbank said Nov. 5 at a conference in New York sponsored by Lehman Brothers Holdings Inc, according to Bloomberg.

"The law had an unintended consequence of taking away a relief valve that mortgage borrowers used to have,'' says Rod Dubitsky, head of asset-backed research for Credit Suisse Holdings USA Inc. "It's bad for the mortgage borrowers and bad for subprime investors because it means more losses.''

[chpxiii]

I am laughing so much at this. It's one of those things where you point and laugh and say, "Ha! Ha!" (To the banks, of course.)

[BKOnce]

Saying ~~~ "What Goes Around Comes Around" !!??...

[Minnymouth]

Yep, these banks raised their cc rates which cut their "own" throats on their mortgages that folks WERE paying ...... now folks can't pay their mortgages too.............

Hows that for kicking yourself in the pants twice!!!! Banks loose on the credit cards and the mortgage payments too..........

And they thought they were screwing John Q Public...... kind of backfired on them...........

John Q Public may have to file bankruptcy, but the banks and mortgage companies are taking a "major blow" from their actions....

Somes results - ARE SWEET.....................

[chpxiii]

With the proliferation of news and the ability to disseminate it, as well as the current "company culture" of layoffs, company bankruptcies, etc. in order to meet the bottom line, John Q Public is taking more of a "business approach." "Laying off" businesses and "firing" them. As well as making a business decision to file bankruptcies.

Yes, the "trickle down" effect does work in some cases. ;)

[yoyoma51]

For my wife and I, filing Ch. 7 just became another 'business decision' about what is best for our future. We dissolved our corporation and then sold it's assets before filing.

Sure, filing bankruptcy has some credit consequences (for a little while, anyway), but if you are able to spend the money for a good lawyer and use the exemptions to the best of your ability, you actually come out pretty good.

PLEASE NOTE: I am not a lawyer. You can assume my comments and/or advice is totally useless. Please consult with a qualified bankruptcy attorney (or three) in your jurisdiction.

[treehugger1]

Very Funny, CHP. When I decided I wasn't going to pay anyone anymore until they had given me negotiated deals at discount interest rates and five-year plans, I slept better at night. It really was a "consumer business" decision. While my approach has been informal (did not "declare" a chapter 13), I am still bankrupt under any common definition. Bankruptcy, formal or informal, is often a business decision. Its funny how some legislators demand particular bailouts for automotive, airline, and now the mortgage industry. But, when it came to the BK reform act, they readily voted in favor.

We all got caught up in the culture of using credit. Sometimes it takes a "business-like" decision to back out of it.

[chpxiii]

Very Funny, CHP. When I decided I wasn't going to pay anyone anymore until they had given me negotiated deals at discount interest rates and five-year plans, I slept better at night. It really was a "consumer business" decision. While my approach has been informal (did not "declare" a chapter 13), I am still bankrupt under any common definition. Bankruptcy, formal or informal, is often a business decision. Its funny how some legislators demand particular bailouts for automotive, airline, and now the mortgage industry. But, when it came to the BK reform act, they readily voted in favor.

That's because the "government" is no longer being run by the people for the people, but by corporations and business (ref: coporate lobbies) for their own self interests.

And it's because of all the corporate bail outs by the government that we NEED bankruptcy laws for the consumer as well.

We all got caught up in the culture of using credit. Sometimes it takes a "business-like" decision to back out of it.

Yep!