Real estate analysts expect more than 1 million families to lose their homes as a result of the sub-prime debacle and other sleazy tricks banks and mortgage companies used to talk people into mortgages they could not afford.
Capitol Hill, responding to the anguished cries of the dispossessed, is denouncing the situation and promising relief. But among those crying “foul” are those, some Democrats among them, who helped create the crisis.
These are the Senators and House members who voted for the 2005 Bankruptcy bill. All-in-all 18 Democrats in the Senate and 73 Democrats in House joined with 55 and 229 Republicans, respectively, to pass this gift to the banking and credit card industries.
As a result, many people no longer qualify for the bankruptcy protection that would have saved their homes. A piece on CBS MarketWatch describes the problem. Citing a March study by Credit Suisse Group, it reports:
At least part of the blame, says the report, lies with a bankruptcy law passed in 2005. The law raised the bar for people to qualify for Chapter 7 "fresh start" bankruptcy proceedings. Chapter 7 can enable individual filers to wipe away debts such as credit-card and medical bills so they can continue to make their mortgage payments. With access limited, more subprime borrowers are forced into Chapter 13, where some can't maintain their payment schedules for more than a couple of months.
The Kings, for example, had thought about filing Chapter 7, but made too much money to pass the new bankruptcy law's means test, said Mr. King, an airline baggage handler.
"It's become harder to file for Chapter 7 to release debt burdens," said Jay Guo , a director in Credit Suisse's asset-backed securities research group in New York and the lead author of the study. "Going forward," he added, "delinquent loans are more likely to go into foreclosure directly rather than into bankruptcy," resulting in [more foreclosures].
Ignoring mountains of data showing the vast majority of those resorting to bankruptcy protection were forced into it by job loss or medical bills, Congress voted to make it far more difficult for ordinary working Americans to qualify. Instead many of these people were to be forced to carry their debt for much of the rest of their lives.
To make the pill even more bitter, these legislators offered loopholes for the wealthy: the ability to shelter tens of millions of dollars in a “home” or in complicated trusts only available to the very rich.
One leading Democratic Senator defended his vote for the Bankruptcy bill in the 109th Congress by saying he had voted for it in the 108th and had to “be consistent.” To which Senator Kennedy responded, “Anyone who can’t explain a change of position doesn’t belong in the U.S. Senate.”
Perhaps the Senator will have an easier time explaining why he voted to throw people out of their homes.
That said, it’s time to completely rewrite the Bankruptcy bill before hundreds of thousands more families lose their homes.