# How will the 2005 bancruptcy laws affect our economy



## northdakotakid (May 12, 2004)

I am not sure if people are aware of how much these changes in lifestyle and several other factors among the American public will curb the strong economy that we have... unless someone is willing to take on the risk that these borrows will hold.

http://www.bankruptcyreader.com/2007/02/soaring_bankrup.html


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## Chuck Smith (Feb 22, 2005)

One thing it is going to effect is the college student or the just graduated college student.

Before kids and parents found loop holes in funding a kid's college education. It ranged from second mortgages, certain types of student loans, paying for the education on Credit cards, home equity loans paying for education, etc. Now many of these types of loans if they can be proved that they are used for payment of education they can not be file for bankruptcy. So kids and parents will be having more dept....and bad dept at that.

Also credit cards are harder now to file bankruptcy for as well. So college kids that start to amass larger CC debts will find it hard to pay them off.

Another thing to look out for is the lending that is taking place or people borrowing more than they can afford to purchase homes. Bankers and lenders are trying everything they can to get loans and with low rates people are taking advantage, as they should. But some are not being smart about it.

Example......A newlywed couple bought a home for $150,000 @ 7% for 30 year loan. That is about $1000 a month in payment. So they go in and sign the paper work. Now a year goes by and they need a new vehicle. They go to the banker and instead of getting an auto loan the banker tells them why not refinance their home for less rate. So they do. Now they got a loan that is $180,000 and to keep the payment at $1000 a month they extend the loan out to 40 years. Ok... now they have a little on that is on the way and the and need some extra cash for baby things and maybe need to finish off the basement of the home. So they go and get a Home improvement loan from the bank..... Which is an added $20,000 loan extended out 15 years...this adds another $150 on to the payment.

Now a total of 5 years have gone by and they want a new home (average time a couple staying in their first home is 5 years.). So they have amassed $200,000 in debt. Now that couple needs to sell that home for $200,000 in order to break even. Let alone make some money off it to pay the realtor or other expenses or have some money for a down payment on a new home.

So with these examples and the hard to file laws in effect. You will see not as much purchasing or you will see more homes getting foreclosure. In my area you can read in the evening paper about 10 homes that are up for foreclosure. Tough times could be ahead.


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## Gohon (Feb 14, 2005)

If you buy a home for $150,000 and sell it five years later for $200,000 then you profited by $50,000. Doesn't matter if you waited until the end of the five year period or cashed out twice during the five year period, you still made $50,000.

I once owned a home in California and I cashed out three times on that home in a ten year period. When I did sell the home I made enough to pay the Realtor, pay for a move across country and a down payment on a home in another state, not to mention all the money I reaped when cashing out. It can be done if you are willing to gamble and that gamble like you said is taking a chance that the market doesn't fall out from beneath you and leave you owing more than the home is worth. I don't consider any of that luck but just simply paying attention to what the market is doing.


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## Chuck Smith (Feb 22, 2005)

Gohon...

You missed *A LOT* of information....

They refinanced and added another $50,000 in debt. So they are only breaking even and have not paid the realtor expenses, have any money for down payment on next home or made any money off the home.

Also they need to sell a home that is worth $170,000 for $200,000 to break even. ($20,000 to finish basement.) Because you see they added only $20,000 in value of the home. Nothing mentioned about market.
_____________________________________________________________

I know how the real estate market is, I am a realtor. But you see the real estate market in many area's are dying or slowing way down. People who bought on the high end of the market could take a kicking.

Also with the new laws in effect about bankruptcy the debt will stick with these people. If you don't believe me look in your area papers and look at the foreclosures. In my area you can see 10 + foreclosures in the paper. Last night I counted 15. I also see homes up on the market that banks own. 5 years ago I did not see any.

Here is another example I am seeing. A person built a home or purchased a new constructed home for $250,000 about 5 years ago. Now they are trying to sell them for $300,00 because of debt they have on it and want to pay realtor and make some off it. Now builders are selling brand new homes of the exact same sqft and everything for $285,000.
So these people trying to sell these homes are stuck. Why buy an older home (yet 1-5 years old) for $15,000 more than new!

You see some lenders have over extended many people for what they can actually afford. Now with new bankruptcy laws you will see people are going to be stuck with this debt and not be able to clear it up like they could before. In turn the new bankruptcy laws will hurt their buying power in the future.


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## Gohon (Feb 14, 2005)

I don't think I missed any information. They took out a $30,000 second which means the home probable appraised at $200,000 for then to carry 90% which is now $180,000 total. They are not going to get the loan without an appraisal of the property. At a later time they took out another $20,000 improvement loan which again means the home was appraised at a higher value, and using the 90% with excellent credit rate that most lenders use it means the home was appraised around the $220,000 mark. Working in real-estate you would know better than anyone that very few lenders will loan up to 100% appraisal but usually stay at the 90% mark. But the bottom line is they received $50,000 for what ever reason that was not money earned and they spent it. If the market falls or goes flat, that is the gamble you take when putting your nest egg or future into a home, expecting the market to always rise.

This is where we really disagree. It is not the fault of the bankruptcy laws that have these people stuck in a home worth less than what they have tied up in it but the fault of the people themselves. Piss poor management of their income is what got them into their mess and I don't think it is fair that someone else is going have to pick up the tab for them which is exactly what happens every time someone files for bankruptcy. Granted the lenders may be partly to blame but no one forced Joe Blow to take out that extra loan for that shiny new car he wanted to he could keep up with the Jones next door, or to buy a home he knew he couldn't affords in the first place.........he did that all on his own. Yes there are exceptions when a hardship falls on a family such as a death or something of that nature but that is the exception, not the rule.

You're the expert in this field and I'm not about to argue the finer points of real-estate but if someone receives loans on their home to the tune of $50,000 then they made $50,000 up front. If they can't sell the home for the total now owned on the home then they will have to eat the loss what ever it may be but don't look for a easy way out of debt at my expense and that is what will happen. The consumer somewhere will have to pay for that persons bad money management. I guess I'm of the old school that says you work yourself out of debt, not lay it off on someone else.


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## Chuck Smith (Feb 22, 2005)

Gohon....

My example was a 100% loan....I stated nothing about 90% or 80%.

Because lots of banks/lenders now are offering $0 down programs and 100% or 103% loan programs. Also alot of banks are doing an 80-20 loan. Which means you finance your down payment (20%).

Again here is another example: I have gotten calls from Lenders in CA that ask me to do a "Drive by" Market Analysis. This means I go by the home and look at the exterior condition not interior. The lender tells me it is a 3 bed and 2 bath and give me the square footage. Then I come up with a market analysis. (I have only done one of these.) I came up with about $30,000 less than what this lender needed. He told me to "fudge" the numbers so it will come in his favor. I told him I would not do it. He hung up the phone and I never received payment. So I would bet my business that he just kept calling realtors until he got the number he wanted. I used to get about 2 of these calls a week.

I am also an insurance agent. You would not believe how many calls I get from lenders asking to have the home value increased to cover a loan. Yes I had a lender ask me to change the value of a home from $150,000 coverage to $300,000 coverage on a home that is 20 years old. The homes market value was about $200,000. We get these calls all the time.

I agree with you 100% it is not the laws but people over extending themselves. And these new laws are making the debt stay with them. before they could pass the debt on and get a clean slate.


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## DJRooster (Nov 4, 2002)

If flat out overspending is the reason for going bankrupt I have no sympathy. Some of the other reasons mentioned in the article I can understand. I know some who are chronic offenders due to their own stupidity and for these again I have no sympathy. Credit card debt with the high interest rates that go with them are a disaster waiting to happen if you get in too deep. The real estate disaster in my opinion is a result of greed and overspending and for these people I have little sympathy. You don't sign loans for hundreds of thousands of dollars without reading the fine print and looking at all the angles and if you do well then.... It is typical of any bubble and when it bursts stupid people get caught with their pants down. This leads to more regulation and for many in the political arena it somehow must be the fault of the liberals so rather than blaming the individuals might as well blame it on the liberals. [/i]


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## Mr. Lee (Oct 12, 2002)

> Now with new bankruptcy laws you will see people are going to be stuck with this debt and not be able to clear it up like they could before


 Thats good! Thats the way it should be.


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