Bankruptcy

Even Creditors Don’t Like the New Bankruptcy Law

Credit Suisse just issued a 60+-page report on the impact of BARF (aka BAPCPA) on various home equity lending products. Their conclusions: BARF is bad for business.

From the summary:

We believe that the new bankruptcy law introduced on October 17, 2005 has had a profound impact on subprime borrowers. Under the new law, we find that bankrupt borrowers are riskier. Under the new law, the means test is more difficult to pass for bankruptcy petitioners, and more subprime mortgagor filers are required to enter Chapter 13 rather than Chapter 7 bankruptcy, even though they might not be able to complete the repayment plan. Our analysis reveals that a higher percentage of borrowers are failing their bankruptcy repayment plans. 

That last sentence is a little scary but to be expected. Chapter 7 has a new bar to entry, remember - the means test, which funnels more and more people into Chapter 13 plans. It’s to be expected that a growing percentage of those diverted filers aren’t really going to be able to afford those plans.  But because the law makes little allowance for reality, this is the unfortunate result.

If you’d like to read the entire report, it’s here in PDF.

© 2007 SC Bankruptcy & Consumer Law Blog.