As countless bankruptcy clients in this country have made clear, seeking the debt dissolution solutions of a personal bankruptcy can help free up finances that help with home mortgage payments—even amid the real estate reckoning of the recent recession—and, as such, aid many households in avoiding the perils of foreclosure.
But now the proof is in the reporting.
In a report released Tuesday, New York Federal Reserve researchers Donald P. Morgan, Benjamin Iverson and Matthew Botsch determined that there is a direct link between the October 2005 change in bankruptcy laws via bankruptcy abuse reforms (or BAR)—a change that made it more difficult for ordinary Americans to eliminate debts in bankruptcy—and approximately 116,000 additional subprime mortgage foreclosures in 2006.
As their paper makes clear, “Before BAR, any household could file Chapter 7 bankruptcy and have its credit card and other unsecured debts discharged. By sidestepping their unsecured debts, households retained more income to pay their secured debts, such as mortgages. BAR blocks that maneuver by presenting a variety of obstacles, including a means test that forces better-off households that demand bankruptcy protection to file Chapter 13, where they must continue paying unsecured lenders. When the means test binds, cash-flow-constrained mortgagors who might have saved their home by filing Chapter 7 are more likely to face foreclosure.”
The paper goes even further to note that these same foreclosures caused real estate prices to plummet at rates, that, we now know, caused a domino effect which contributed to even more foreclosures. And, as the value of one home (or lack thereof) relates to other home appraisals, the fact is that falling home prices created more underwater mortgages, as more and more homeowners could not sell their homes or refinance their mortgages, making default, and foreclosure more reality than fiction.
"By making it harder for borrowers to avoid paying credit card debt, [the 2005 bankruptcy law] made it more difficult for them to pay their mortgages, so foreclosure rates rose," the economists wrote in their report.
Conversely, access to bankruptcy made (and continues to make) saving a home more possible.
While these so-called reforms to bankruptcy law received bipartisan support in 2005, they did not take into account financial problems beyond consumers’ control, forcing the masses to walk away from their homes en masse. Experts are now beginning to understand, even if they didn’t before, that the high levels of consumer debt and financial distress seen in recent decades are not representative of a lack of consumer control, but rather a financial system beyond consumer control.
In an article published by The Boston Review shortly after the 2005 law was passed, then-Harvard University Law School Professor Elizabeth Warren, who is currently charged with setting up the Consumer Financial Protection Bureau, argued that underemployment, higher household expenses, rising health care costs, and expensive mortgages were making the middle class turn to bankruptcy—not, as was previously thought, an “epidemic of overspending.”
Nevertheless, if you are truly concerned about saving your home and are considering bankruptcy as a solution, don’t believe the BAR has set the bankruptcy “bar” too high. Last year millions of people found a bankruptcy answer to their home ownership issues. And you can too. An experienced bankruptcy attorney can navigate the means test suggest pre-petitition planning to get you past the means test and qualified for a Chapter 7 or Chapter 13 bankruptcy.
So, if you too have been affected by the economic crisis, knowing a qualified bankruptcy attorney can also help you to conquer your creditors and face the evils of foreclosure, yielding the right kinds of support, information and insights—at a low cost— for a viable and secure future beyond our own “Great Recession.” The bankruptcy experts at the Law Offices of John T. Orcutt offer a totally FREE debt consultation and now, more than ever, it’s time to take them up on their offer. Just call toll free to 1-888-234-4181, or during the off hours, you can make your own appointment right online at www.billsbills.com. Simply click on the yellow “FREE Consultation Now” button.