Donald Trump Proves What's Wrong With Bankruptcy Laws in America

Jun 2014
11,878
4,381
United States
#1
Donald Trump Proves What's Wrong With Bankruptcy Laws in America - POLITICO Magazine

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The granddaddy of all failures to repay what was owed occurred in September 2008 when Lehman Brothers went into the largest bankruptcy in history, with more than $691 billion of assets and far more in liabilities. Some commentators (including yours truly) urged then that the rest of Wall Street be forced to grapple with their problems in bankruptcy as well. But Lehman’s bankruptcy so shook the Street that Henry Paulson, Jr., George W. Bush’s outgoing secretary of the treasury, and, before that, head of Goldman Sachs, persuaded Congress to authorize several hundred billion dollars of funding to protect the other big banks from going bankrupt. Paulson didn’t explicitly state that big banks were too big to fail. They were, rather, too big to be reorganized under bankruptcy—which would, in Paulson’s view, have threatened the entire financial system.

The real burden of Wall Street’s near meltdown fell on homeowners. As home prices plummeted, many found themselves owing more on their mortgages than their homes were worth, and unable to refinance. Yet chapter 13 of the bankruptcy code (whose drafting was largely the work of the financial industry) prevents homeowners from declaring bankruptcy on mortgage loans for their primary residence.

When the financial crisis hit, some members of Congress, led by Illinois Sen. Dick Durbin, tried to amend the code to allow distressed homeowners to use bankruptcy. That would have given them a powerful bargaining chip for preventing the banks and others servicing their loans from foreclosing on their homes. If the creditors and homeowners couldn’t come to an agreement, the homeowner’s case would go to a bankruptcy judge who presumably would reduce the amount to be repaid rather than automatically force people out of their homes.

The bill passed the House, but when in late April 2009 Durbin offered his amendment in the Senate, the financial industry—among the largest donors to both parties—argued it would greatly increase the cost of home loans. (No convincing evidence showed this to be the case.) The bill garnered only 45 Senate votes even though Democrats were in the majority. As a result, distressed homeowners had no bargaining power. Subsequently, more than 5 million lost their homes.


Another group of debtors who can’t use bankruptcy to renegotiate their loans are former students laden with student debt. Student loans are now about 10 percent of all debt in the United States, second only to mortgages and higher than auto loans and credit card debt. But the bankruptcy code doesn’t allow student debts to be worked out under its protection. If graduates can’t meet their payments, lenders can garnish their paychecks. If still behind on student loan payments by the time they retire, lenders can even garnish their Social Security checks. The only way graduates can reduce their student debt burdens, according to a provision enacted at the behest of the student loan industry, is to prove that repayment would impose an “undue hardship” on them and their dependents. This is a stricter standard than bankruptcy courts apply to gamblers trying to reduce their gambling debts.

Read more: Donald Trump Proves What's Wrong With Bankruptcy Laws in America - POLITICO Magazine
When you make laws favoring one group and don't allow it for others, you have been bought. When you have been bought, you are corrupt and if you are STILL elected, then the corruption is spread to someone getting something from your corruption. How much longer will Americans put up with this?
 
Sep 2015
14,302
5,086
Brown Township, Ohio
#2
I have been bankrupt more than once in my long life but never sought bankruptcy protection. I learned from my mistakes and retired a rich man.
 

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