The new law goes into effect today, making chapter 7 bankruptcies much harder to obtain. I've noticed there's relatively little media coverage about it, considering what an impact it may have.

Personally, I'm having a hard time deciding what I think about the whole thing. On one hand, of course I want to say that people should honor their debts and that's that. On the other hand, there's so many unscrupulous companies out there today that'll rope someone in into a 30% interest situation on a debt that's far beyond their means to repay, that it's possible to never recover from one stupid mistake.

In addition to it making chapter 7's out of reach, it also gives debtors less protection even if they do manage to get one. Auto loans have to be paid in full or repossessed, even if there's negative equity on the vehicle. Before, as I understood it, you could choose to continue your auto loans if canceling them would cause undue hardship. Similarly, the new laws make it easier for landlords to quickly evict tenants that are granted chapter 7.

I'm afraid we're going to see a lot of people knocked off their feet, who've been avoiding the entitlement route and are putting in a best effort to make ends meet. I think for most people, once you break them like that, they'll never be as productive again.

Thoughts?

Should make a law that would go after creditors who are too laxed on giving out debt. If they are not researching the people requesting money more closely then they should pay the price as well.

I've read that over half of bankruptcies are due to medical costs, with divorce and job loss contributing a considerable percentage as well. Proposed amendments included:
*exempting military service members (http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=1&vote=00013) from means testing;
*provide relief for those forced into bankruptcy due to medical bills (http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=1&vote=00016);
*discourage predatory lending practices (http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=1&vote=00022) by credit card companies;
*and to protect the elderly (http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=109&session=1&vote=00014) from having their homes seized.

One summary of the provisions is here (http://money.cnn.com/2005/04/20/pf/bankruptcy_bill/?cnn=yes). The only coverage I saw briefly discussed lines "around the block" of judiciary buildings and making room and staff available to handle the extra caseload. Poverty's (http://www.census.gov/Press-Release/www/releases/archives/income_wealth/005647.html) continued escalation will only be abetted by this law.

EDIT: Reading Bylimet's post, I didn't make clear that the above proposed amendments were all rejected.

Following the links provided, the four amendments offering protections to elderly and servicemen, and addressing medical bills and predatory practices were all rejected by vote.

The financial institutions involved in the credit business are much larger contributors to political campaigns than those who would be filing for bankruptcy in most cases, so it is to be expected that laws would be enacted protecting them rather than protecting people from them. This law will do nothing to change the practice of flooding first year college students with credit card applications, but will provide the lender protections should that student who falls into the credit trap have difficulty paying the credit debt.

On a bit of a sidenote, I was getting offers for a credit card from Providian on a two per month average for almost eighteen straight months. I opened one of these to read what they had to say, and read in the fine print that I would owe $119.00 as soon as I signed my name and returned the application and had the account opened, based on the one time fees for opening an account and the annual fees.

Edit: I forgot to mention that I think it is a good idea overall to make Chapter 7 harder and make Chapter 13 the predominant choice, so that people will be required to at least make some payment on what they have borrowed rather than get a clean slate as Chapter 7 provided . Chapter 13 makes the borrower responsible for his/her actions, and I guess I am old-fashioned enough to believe that folks will have more self-esteem if they work for something rather than have it given freely.

Here is another little tidbit to think about. Think about the little financial institutions. Not the ones like Providian, MBNA, or Chase think about the ones that are less than a billion in assets. The losses that BKs cause make a tremendous impact on them. Losses are inevitable in any lending intuition, but when people have the means to pay back their debt and choose not to by taking the easy way out the institutions loose. If you belong to those institutions you loose also. You loose in higher rates on loans, credit cards, mortgages, and lower rates on CDs, savings accounts, or money market accounts.

There is a place for Bankruptcies. Some people need them to get back on their feet. I’m all for those people who need that second chance. But you know what they say ‘One bad apple spoils the bunch’. That’s what happened. Too many were taking advantage of paying $1k to eliminate $10k-200k worth of debt, when they could afford to pay the debt because they make plenty of money to pay their debts back. They took the easy way out, and those are the people who have just made it more difficult for Joe Littleguy to take a BK and get that second chance.

Now it is just a little more time consuming for Joe Littleguy to get out of debt under the BK plan, but it also makes sure that the person who can still afford to pay their bills responsible for the debt they incur. I don’t see a problem with making the people who can afford their debt, pay what they have already spent. Now the person who isn’t as well off, expended every option available to them in repaying their debts, may need a helping hand. Well with the new law they are still going to get it.

Man if someone takes away my right to go to Burger King because they declare bankruptcy, I'm gonna be pissed too.

Back to the Bankruptcy part though, the little guy really doesn't get any help if in the process of lowering their debt they lose their car and their place to live, no?

Back to the Bankruptcy part though, the little guy really doesn't get any help if in the process of lowering their debt they lose their car and their place to live, no?
Consider if that little guy is going through chemotherapy, with all the expense and life difficulty that engenders.

yeah going through chemo AND losing home and car, this is REALLY gonna hurt the people that bankruptcy should be protecting

I think any solvent financial institution is going to be insured every possible way you could imagine. Yeah, bankruptcies get averaged into higher insurance rates and turn back around into slightly higher fees, but under normal circumstances you're not going to see a bank fold over bankruptcies.

Besides, the interest rate that we pay for the money is exactly intended to cost average the bank's probably liability. If they gave everyone prime plus zero and required no collateral then it would be different, but as is they are extremely well covered.

Back to the Bankruptcy part though, the little guy really doesn't get any help if in the process of lowering their debt they lose their car and their place to live, no?

How would they lose (notice the change from my prev post, got flamed cause I didn't proof read close enough)their car and place to live. If they can afford them they would still be able to keep them. Just like the current, or past effective today, laws. They can still keep the cars, home, any assests they would just reaffirm that debt. Now though they have to reaffirm the debt if they can afford to make the payments. What's wrong with that?

Those things are both changing under the new law.

I think any solvent financial institution is going to be insured every possible way you could imagine. Yeah, bankruptcies get averaged into higher insurance rates and turn back around into slightly higher fees, but under normal circumstances you're not going to see a bank fold over bankruptcies.

Besides, the interest rate that we pay for the money is exactly intended to cost average the bank's probably liability. If they gave everyone prime plus zero and required no collateral then it would be different, but as is they are extremely well covered.

Actually there is no insurance for loan losses. That is the cost of being a financial institution. There is however an insurance policy for losses due to incorrect documentation. For instance if one were to fail to perfect a security interest in a piece of collateral, or fail to get a document signed, or you have an employee who is stealing. You can get insured for those things. You can't get insured for someone who doesn't/stops making payments on a debt. You can only try and recover those monies that are lost. You could see a bank fold over BKs if they are heavy on the loan side and don't have the deposits or reserves to back em up. However unlikely due to the diversity of different loan products (Auto, MTG, personal, credit cards, RVs, etc).

Have we seen a lot of these financial institutions and creditors fold due to debtors filing Chapter 7?

Not that i can find. A few mom and pop local banks, but Bank of America, and the others listed turned a multi billion dollar collective profit last year

Nope, We have an allowence for loan loss, so we take a guess at what the future losses are and set it asside. For the last 3 months over 50% of our losses were due to BKs, and this is rising. Doesn't amount to much because we aren't over 1 billion in assets, but still comes off the bottom line, which gets transferred to the membership. :(

But don't be suprised if you see some smaller banks getting gobled up by the big banks in the near future. If they are taking losses they may start looking to sell, and in about 10 or 15 years you will probably see 3-5 banks as the only alternative to a credit union.

Nope, We have an allowence for loan loss, so we take a guess at what the future losses are and set it asside. For the last 3 months over 50% of our losses were due to BKs, and this is rising. Doesn't amount to much because we aren't over 1 billion in assets, but still comes off the bottom line, which gets transferred to the membership. :(
Any increases in bankruptcies you've seen in the past few months are almost completely due to the news of the law changes that were on the way. All of the reports I've read since they announced the law have said that the numbers of them have been skyrocketing due to the deadline.

Actually they have been forecasting this change periodically over the last several years. And everytime they say it's going to happen it has caused a spike in losses, but the change didn't happen. I do like the fact that now the lawyers are going to be held accountible for any errors or misinformation they provide, in the BK proceedings.

This change will cause a decrease in the amount of losses due to BKs in the future.

Actually they have been forecasting this change periodically over the last several years. And everytime they say it's going to happen it has caused a spike in losses, but the change didn't happen. I do like the fact that now the lawyers are going to be held accountible for any errors or misinformation they provide, in the BK proceedings.
There was no forecasting or uncertainty this time. The law was signed months ago.

This change will cause a decrease in the amount of losses due to BKs in the future.
Do you know of any plans to lower interest rates or fees, based on the lowered risk to financial institutions? That would be the clincher for me. If the creditors are planning on charging the same rates and fees after this, they're no less dishonest than the people frivolously filing bankruptcies.

I don't know about larger banks. I know that Credit Unions traditionally run around 1% Return on Assets (ROA). Many banks avg in the 6% or higher ROA and this goes directly to their stockholders. We run risk based lending and our rates are about .25%-.75% lower than our competion, nationally, but regionally we are about 3%-4% lower than some of the local institutions when it comes to auto lending. Of course they also do some relationship pricing which is if you have all your accounts there you may get rate discount which is still higher than our rates, normally. On the deposit side our rates are the best in the area by at least .25%. Our rates won't change right away. We over estimated our allowance for loan loss by some hefty figures knowing that BKs were going to be an issue, but we are still over budget for loan losses, not realizing how much was going to be lost. We are actually taking losses on 1st and 2nd MTGs now.

Hard to say what the future holds, but it would be nice to pass down some savings to the membership. There will be a lag time to see what the actual impact will be. Hopefully it will save some money for everyone in the future.

"Now it is just a little more time consuming for Joe Littleguy to get out of debt under the BK plan, but it also makes sure that the person who can still afford to pay their bills responsible for the debt they incur."
It will not only be more time consuming, but it will be more expensive. There are additional items that the attorney's now will have to do and the cost for the items, and the time it will take to do the items, will now be passed down to the debtor who is already in financial distress.

With the old chapter 7 they could release the unsecured debt and keep the secured debt as long as it is up to date and continued their monthly payments. With the new laws not only will they have to pay their secured debts but also payment plans to the unsecured debt. If these payments plans are like the payment plans that credit counseling agencies have made previously for creditors and debtors, a debtor will paying off their debts until they die and then some.

"I do like the fact that now the lawyers are going to be held accountible for any errors or misinformation they provide, in the BK proceedings."
The person that should have been and be held accountible for any errors or misinformation in bankruptcies is the bankruptcy clerk. They should review what information is given to them a bit more in depth. Is the person a habitual debtor? Is the person on hard times? Did the person have a life changing situation (medical, loss in job, loss in income, divorce, etc.). These items were to be reviewed previously.

If the bankruptcy clerks reviewed each filing a bit more in depth there would have been many less bankruptcy filings, less repeaters, and less loss. The attorney is there to represent the debtor, and should not be accountible. That is what the bankruptcy clerks and bankruptcy judges are for, no? Or are they there to just do the paperwork?

"Do you know of any plans to lower interest rates or fees, based on the lowered risk to financial institutions? That would be the clincher for me. If the creditors are planning on charging the same rates and fees after this, they're no less dishonest than the people frivolously filing bankruptcies."
Agreed 100%. They should also be held accountible for giving out tremendous credit lines to people who could never afford to pay them back as well. They are just as responsible for debtors having these problems. I can't image them doing it though.

I do not see this as an asset for our country. I do believe there should be stricter laws regarding the filing of bankruptcies, and I do believe the clerks should actually look into the filings. I believe this is really going to hurt people who have fallen hard. I am guessing attorney fees alone to file are going to triple. But it seems as always in the US, the rich get richer and the poor get poorer, and now the poor will have even a harder time to protect themself legally. I have a feeling that the collection agencies collecting on debts are going to go wild on this (filing of civil judgements, sherriff sales, etc)

*made a booboo :(

Both of these statements from Bylimet and Sanchek are probably the sad reality:

"The financial institutions involved in the credit business are much larger contributors to political campaigns than those who would be filing for bankruptcy in most cases, so it is to be expected that laws would be enacted protecting them rather than protecting people from them."

"going to see a lot of people knocked off their feet, who've been avoiding the entitlement route and are putting in a best effort to make ends meet. I think for most people, once you break them like that, they'll never be as productive again."

As far as Nanora's statements, here is some reality about banks and credit card companies.

Banks:

Rarely, if ever, will a bank write a loan that is not secured.

Realestate, bank accounts, SBA - Government guarantees etc...

Credit card companies:

They are guilty of giving credit to people who have no business receiving the credit lines that are handed out, I know of people with fixed incomes who have credit cards with 15,000 - 25,000 dollar limits.

Credit card companies also sell their BS that credit card fraud is one of the many things that cause high interest rates. But, credit card companies lose NOTHING on stolen cards, its the poor merchant that has sold the item to the person that loses. The merchant gets the chargeback and has now shipped the item or sold the service at no charge, the person who stole the card gets the item or service, the merchants bank now charges them for the transaction reversal (so the bank collects a fee - usually $35.00 +)

Scenario- Thief uses stolen card, buys TV for $2500.00 and provides all the correct info that the merchants credit card processor requires. The transaction is authorized as per the credit card companys requirements.

$2500.00 transaction

Credit card processing takes 2.2%

Plus .35 transaction fee

Credit card company now takes $44.35

Merchant receives $2455.65

Merchant ships the item

Person discovers bogus charge on their account

Disputes transaction

Credit card company reverses transaction for $2500.00 (yet conveniently keeps the $44.35 fee)

Bank charges $35.00 for transaction reversal (taking the money back out of the merchants account)

Merchant gives TV away for free now and pays for the shipping of the item. (what a nice merchant)

Person who stole credit card gets free TV

Person who had card stolen MAYBE pays $50.00 but rarely if at all.

Credit card company makes $44.35

Bank makes $35.00

Credit card company gives person new account and new card(cost is $7.00)

Gross profit to credit card company: $37.35

The moral of the story is:

Banks and credit card companies don't lose

Politicians are full of poopoo

Done right, you can get a free TV from your local merchant while helping the bottom line of a bank!

There are some people that have grossly taken advantage of the bankruptcy laws. There are however, many more that needed them as they were and are no less productive to our society than those who have never filed.

Prediction:

People will spend less, which will cause a slowdown of collected interest, which will be the next excuse to keep credit card rates high.

I've read that over half of bankruptcies are due to medical costs, with divorce and job loss contributing a considerable percentage as well.

I believe it. I went to the doctor the other day. $400 bucks for 45 min of time. 5 min of which I was actually attended to..the other 40 I was waiting out front and in the patient room while the nurses gosipped out in the hall about the Pharmaceutical rep's massive ring.

Pissess me off. People can't even afford medical care. GREED.

Some interesting things were brought up.

It will be more expensive for the person filing. The costs of the errors are going to rest on the attorney’s shoulders. You say these are the guys who are to protect the borrower/consumer. Yet when someone takes a BK I cannot contact them at all, even if they want to keep their vehicle I can’t talk to them until the BK is discharged. Then if the borrower doesn’t reaffirm the debt (many attorneys don’t allow this. More work for them) I can’t do anything else to help the person. This includes talking about credit counseling, giving them a check book teaching them the proper way to handle debt or balance a check book etc. Or hell even if they want a 1 month extension so they can buy Christmas gifts, I can’t help them. The attorney wouldn’t allow the reaffirmation. They can make voluntary payments on it, but that still means I can’t help them, because 99.9% of the time it becomes a loss. So let’s not say these attorneys are looking out for the borrower/consumer. They aren’t. This will make them accountable. Don’t get me wrong there are some who are there for the people, but I bet you see a lot of attorney’s getting out of the BK business.

With the new Chapter 7 they can still be released from paying their unsecured/undersecured debt if they can prove they can’t afford it. Only change there is that if they can still afford it they get to pay it. Secured debt though takes a bit of change. It just means that the person gets to reaffirm that debt for the balance or redeem (payoff) the debt for the value of the collateral (just checked with my collector on this). So if someone has a $10k loan on a vehicle worth $7k they can either reaffirm the debt for the $10k or pay it off/refinance it somewhere else for $7k. No more voluntary payments. This is true of MTGs as well.

The bankruptcy clerk. I’m assuming you mean the Bankruptcy Trustee appointed by the court to delve into this the borrower’s situation? (I’m going off the knowledge I have in Iowa. I’m not sure about other states.) This person is there to find out as much as they can and liquidate every asset they possibly can, and disperse those monies to unsecured creditors. I’m not a fan of these people. These folks are the reasons most people lose their assets. For example if the financial doesn’t perfect a security interest a secured loan in a timely manor they liquidate the vehicle because now they show it as a free and clear asset, and if you can’t pay your bills they don’t think you should own a vehicle free and clear even though you have a loan on it and sell it to pay your other creditors. (We have a case like this right now, the borrower is losing their vehicle, but doesn’t want to, and the Trustee doesn’t care.)

I can honestly say that there is no true BK predictor. Some people are 1 paycheck away from BK, others have excellent capacity to repay their debt they just don’t want to wait 5-8 years to do so. It basically comes down to helping people understand the implications of credit and how it can effect everything, from the rates people pay, their ability to get credit, their costs for insurance. I’ve seen BKs on great borrowers. On the flip side I’ve seen horrible credit on some borrowers but they still pay their debt to me on time every month. Some may not agree with these changes. I just know from where I sit it will allow me to help those that need it / want it... Better. And due to that I like the changes. They won’t tie my hands in trying to aid people with their finances.

Sorry for the long winded post.

Not quite true about the fraud. We don't charge off a bunch due to fraud, but we lose some every month. :)

PS, BK doesn't have a HUGE impact on a person's credit score. DQ's and recentcy of the DQ's play larger part.

"You say these are the guys who are to protect the borrower/consumer."
"So let’s not say these attorneys are looking out for the borrower/consumer."
I did not say that the attorneys are there to protect the borrower/consumer or looking out for the borrower/consumer. What I said was:
"The attorney is there to represent the debtor, and should not be accountible."
"And now the poor will have even a harder time to protect themself legally."
Protect themself legally being: to retain an attorney regarding bankruptcy, so that repo's, foreclosures, civil judgements, sherriff's sales, etc. do not happen.
"Yet when someone takes a BK I cannot contact them at all, even if they want to keep their vehicle I can’t talk to them until the BK is discharged."
You can thank devious collectors for that. That was placed in effect in the FDCPA due to harrassment by collectors.

Guess my thoughts are...To think of people that survive something that financially devistates them and to survive it - then to not have the funds to file the bankruptcy - have what little of their belongings they might have left be sold at a sherriff sale makes me completely sick to the stomach. I look at the people that have been effected by all these storms, lost homes, vehicles, all their belongings, they still have debts, and even with the aid they are receiving, I do not see it as enough. When their lives get back to "normal", they will have a hard time, and now...even a harder time filing bankruptcy.

The study was done by Harvard. The sky high prices of medical services, prescriptions and hospital stays have been the cause of over 50% of personal bankruptcies. Of course, some partisan hacks will say it is the cost of malpractice suits that has driven up costs, but that is BS. I hope none of you have to experience the pain of an infertile wife who is hell bent on having children. The insurance company considers all these fees to be "elective procedures" and the doctors orders up every frikken procedure on the books because my wife is a deer in the headlights. I shouldnt have to take a second on my house to have a baby.


http://www.law.harvard.edu/news/2005/02/03_bankruptcy.php

The study was done by Harvard. The sky high prices of medical services, prescriptions and hospital stays have been the cause of over 50% of personal bankruptcies. Of course, some partisan hacks will say it is the cost of malpractice suits that has driven up costs, but that is BS. I hope none of you have to experience the pain of an infertile wife who is hell bent on having children. The insurance company considers all these fees to be "elective procedures" and the doctors orders up every frikken procedure on the books because my wife is a deer in the headlights. I shouldnt have to take a second on my house to have a baby.


http://www.law.harvard.edu/news/2005/02/03_bankruptcy.php

No joke...after seeing how much these chumps make it made me think twice about going to law school. Oh well I'm already in it so no backing out now lol...

Mabye I'll SUE SUE SUE in a few years to legitimize their lame excuses on rising costs. It's all because of lawsuits and "technology" right? ROFL. That's why my doctor proscribed me Mobic, one of the most expensive brand name anti-inflamatories for my lower back when there are countless generics. End result was a $108 buck trip to Walgreens and a nice premium for the pharmaceutical rep, and a nice golf vacation to florida for the doc.

I am not surprised there is not much in them media about it. Who owns the media? :)

Bob Saggot owns the media.

Bob Saggot owns the media.

And so much more . . . (http://www.bobsagetisgod.com/)

No joke...after seeing how much these chumps make it made me think twice about going to law school. Oh well I'm already in it so no backing out now lol...

Mabye I'll SUE SUE SUE in a few years to legitimize their lame excuses on rising costs. It's all because of lawsuits and "technology" right? ROFL. That's why my doctor proscribed me Mobic, one of the most expensive brand name anti-inflamatories for my lower back when there are countless generics. End result was a $108 buck trip to Walgreens and a nice premium for the pharmaceutical rep, and a nice golf vacation to florida for the doc.

Loksley... the deal is that if the doctor's try to treat consevatively they get bitten in the ass when chumps want to sue them for stupid shit.

Also, doctors don't make any money on prescriptions or tests they order. (unless they something like an MRI or more but then there are stark laws that keep you from basically referring to yourself).

So that case holds very little water. However... if you want to see some real money just file a lawsuit.... Attornies charge 125 bucks for a 15 min phone conversation.... heaven forbid you have them look something up.... then they tell their flunky para-legal to do it and charge you like they did it.

Then if you want to really make some money file a law suit..... The victim of a rightful lawsuit doesn't get 90% or 80% it more like 50 or less.....

And it cost money to defend any lawsuit.... whether you are right or wrong.... so before you start throwing out how the doctors are ripping people off you better look into your future own back yard.

A lot of those doctor costs come from the fact they simply wave the cost of others who do not pay onto you. I watched a 60 minutes thing a while back on the ER in an office in New York was treating people from out of the country for a serious illness who cannot even pay a single penny and when asked who will pay for those costs..they simply stated those who can pay will simply pay more.

You also might want to remember that most of the doctors you see are salaried employees of the health organization/hospital you are visiting. They are under contract to work certain hours with certain days off, within the parameters of their training and the contract.

Now, in some circumstances they do receive extra monies, such as if you are admitted to a hospital from the clinic, they may show up on the itemized charges as a consulting physician if they come and visit doing followup along with whoever the doctor is in the unit you are admitted to; for the most part, they are much like middle management anywhere else that has a set salary and assigned responsibilities. That is for the average doctor you see, however. Specialists and private practice doctors make whatever they can get you to pay, it seems.

BTW, I read through the itemized charges for a visit to the cardiac ICU some time back, and it cost over $600 to have them bring the cart in and apply paddles, separate from everything else. This was a while back tho, so I am sure it is higher now. It will never stop amazing me how they can inflate charges.

Another medical aspect that hurts families financially is dental work, and it is terrible seeing kids with rotting teeth because their parents had to choose between groceries and getting a filling taken are of; and god forbid they need a crown (which have gone from $490 in 1990 to $900+ now, and my friend who works making dental prosthetics says the cost is still around $100-$175 to make one just like back in 1990).

It is true, though, that the losses faced by medical institutions are usually passed on to the rest of the folks who are insured and paying for their care.

Chapter 13s are a much better form of BK than Chapter 7s. Chapter 7s were too prone to abuse and varied greatly from state to state regarding exemption (e.g. Florida's homestead exemption). Chapter 13s have been around for a long while although I believe were primarily used in the south. From my experience, Chapter 13s worked out better than Chapter 7s for the debtor and creditors. I don't know enough about the other changes (primarily corporate BKs) to comment on them yet.