Friday, January 9, 2009

Bankruptcy Blah Blah Blah

It seems that every time I think I have run out of things to comment upon, I find some new outrageous issue. This time it is the discussion of proposed revisions to the bankruptcy laws to favor home owners in default.

Here's the proposal. Give more leeway to homeowners allowing a Federal Court Bankruptcy Judge to essentially re-write the homeowner's mortgage to reduce the interest rate or to establish the home's fair value in the event of a foreclosure. Now that doesn't sound too bad does it?

Think again, if I buy a house and pay cash (or spend years and pay off the mortgage), I will have to pay every penny of the value. But if one of my neighbors ran out and purchased a home with no money down and a low initial rate on an Adjustable Rate Mortgage (ARM), then they can file bankruptcy, now that they find themselves unable to make the payments, and have the Court reduce the amount they have to repay by lowering the interest rate.

In a recent article entitled "Please, Judge, Save My House" published in the AARP Bulletin for January/February 2009, one homeowner was quoted as saying, "Bankruptcy turned out to be a bunch of blah, blah, blah. It's really not a help for working people like me." Excuse me. As a practicing attorney I never viewed bankruptcy as a "help" for anyone. I always thought that it was kin to death. You only went into bankruptcy as a last resort, not if, like the woman quoted, you owed $10,000 in credit card debt and really, just wanted a way to refinance your home loan.

How does changing the bankruptcy laws to allow for a renegotiation of home loans benefit all those people who are diligent in paying their payments. I pay 6.5% and my neighbor, who also pays 6.5% takes out bankruptcy and then gets his rate lowered to whatever. But if I go to my bank and say, look, I am diligent in paying my mortgage, how about lowering my rate to the rate you just gave my neighbor? I am sure they would laugh at me. In other words, I am penalized because I pay my debts!!!

Not that the people who cannot pay their mortgages are dead beats, but there are some who purchased their homes with no intention or no ability to actually make the payments. In those cases, changes in the bankruptcy law to allow for substantial reductions would be nothing more than a windfall, a free ticket to more deadbeatism.

What if I don't have a mortgage at all? My home decreases in value just like my neighbor and if I have to sell my home with the market down, I will lose a large chuck of what I thought I had in equity. On the other hand, if I wasn't so unAmerican to own my home, if the home is owned by the bank, I don't have to take the hit, I can file bankruptcy and have the amount I paid for the home adjusted downward to keep me from losing money. If you can't see what's wrong with this scenario, you probably have a large mortgage.

What about a program to subsidize those who own their homes? Why not allow a credit or something that will help to reduce the bite of the loss in equity due to the downturn in the market?


  1. "As a practicing attorney I never viewed bankruptcy as a "help" for anyone. I always thought that it was kin to death. You only went into bankruptcy as a last resort...."

    Agreed. 100%. Our society has developed a victim complex that, coupled with a strong (and growing) sense of entitlement, will be the death of us. Bankruptcy has become the little person's bailout; plan B. Never fear, the government is here! Never mind the fact that our government is really in no position to extend aid what with its own trillions of dollars of debt. What happened to self-government and frugality? What happened to self-control and temperance? We've lost it. And when our pocketbooks can no longer support our lack of self-restraint, we go running to Big Brother government with sob stories about Banana Republic shirts that we just had to have, expecting sympathy and exoneration. We are losing our sense of responsibility - for ourselves, our families, and our society. If you break down Big Brother Bailout, folks, "he" is made up of you and me, Smiths and Andersons. There is no all-powerful government that can rescue us from our personal folly. The government of our Founding Fathers was built upon principles of self-government. My how much has changed since then.

    Whew, sorry about that folks. I just laughed with my husband as I told him my realization that I carry my soapbox with me from blog to blog. :) I never realized I had so much to say about...well...everything. :)

    James, I hope you'll forgive my sermon.

  2. Where can I find me one of them loans?