When Federal Bankruptcy laws were toughened up in 2005, due in large part to a $40 Million lobbying effort by credit card companies and lenders, homeowners have walked away from their houses and not filed bankruptcy in record numbers. Business Week recently reported that 800,000 fewer homeowners filed bankruptcy after defaulting on their home mortgages when BAPCPA passed in 2005. A report from investment bank Credit Suisse said “[T]he [bankruptcy] rules are directly responsible for the foreclosure rate” (which is up at least 4%).
Car lenders, too, have taken a hit as a result of the infamous “hanging paragraph” of BAPCPA, bad drafting which has made it unclear whether a debtor in bankruptcy can buy his car for its value or has to pay the full amount of the debt. This poor drafting alone has engendered millions of dollars of wasteful litigation since September of 2005.
As this article is being uploaded, Congress has begun debate on the $700 Billion bank bailout. Whether or not it is needed I leave to wiser and more expert people than I, but the lesson should not be lost: “Watch out for what you wish for” and consider carefully unintended consequences.