Did the new bankruptcy laws lead banks to be overconfident with lending and to the mortgage/credit crisis?

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Washington Mutual Inc. got what it wanted in 2005: a revised bankruptcy code that no longer lets people walk away from credit card bills.

The largest US savings and loan didn’t count on a housing recession. The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the International Monetary Fund and the World Bank.


  1. Reply
    An0nym0us mAn1Ac
    April 29, 2011 at 10:09 pm

    They did it to themselves. Anyone that gets a credit card knows that the credit card company will want you to pay back any money you use.
    Why are these people crying about something they did to themselves. I have credit cards too, but I don’t abuse them. They are for specific purchases (like large items so I don’t have to carry large amounts of cash around).
    It’s the peoples own fault that they are in the situation they are.
    I applaud the banks for closing that loop hole allowing people to just declare bankruptcy just to get out of paying their bills.

  2. Reply
    April 29, 2011 at 10:50 pm

    Actually, I think you may be partially right in that the new bankruptcy laws are preventing people from getting out of these loans. However, they are not corollary causes to a single effect.

    When the government demanded that the banks make ARM (Adjustable rate mortgages) available to anyone basically with a pulse or who could still breathe in order to prevent instances of discrimination, it opened the door for abuse which subsequently came running.

    Now the same government which instigated the direct cause of the problem is coming in to fix it? In my humble opinion, that will only lead to further difficulties.

    However, while there are sometimes extenuating circumstances, teaching people that they actually have responsibilities in addition to simply having their rights would have successfully prevented many of these difficulties. If people are out spending money on their credit cards or signing financial agreements without knowing what they are signing or how much it is going to cost them, it is a little difficult for me to personally be too sympathetic.

    That is not to say that there were not also some less than scrupulous lenders who also took advantage of the situation though. Unfortunately, it is doubtful that anyone will ever enter this investigation with any real hopes of solving anything other than how to give the government even more power.


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