Bankruptcy Laws
Passing tough new bankruptcy laws in 2005 should benefit consumers in terms of reducing the loss to creditors file bankruptcy more difficult. But two new reports published this week indicate that the new laws not only cost consumers more in terms of credit card debt, but may actually encourage more bank losses because of increased foreclosures.
According to new research by the Bankruptcy Reform Act 2005 came into force, both personal bankruptcy filings and credit card company losses decreased significantly.
At the same time, while before the annual credit card fees have been virtually eliminated, the fees have been climbing and less transparent over the years, and there is no evidence that the 2005 reform failed to reverse this trend. . . over limit fees and penalties for delay have been climbing long before the reform of bankruptcy, and this trend continued after the Bankruptcy Reform Act of 2005.
industry consolidation credit card market of card issuers to avoid possible higher losses from a “price war, lowering rates to attract new customers.
credit card industry would also be able to avoid price competition because of complex, multi-level prices, which can be difficult to comparison shop for customers. These fees and interest rates, complex in their own right, are presented in a form that is difficult to understand. Customers Faced with this complex and recalculate prices systematically underestimate the cost of credit card debt.
The 2006 report of the Government Accountability Office (GAO) which found that just the fact that bank fees and penalties continue to grow for the cardholder, but disclosure and explanation of the rates of credit cards are deliberately written in a behavior that is difficult to understand. GAO also recommended in a separate report that credit card issuers use existing technology to bring the publication of each card cardholders, especially those with high balances or frequent late payments.
The fact that after bankruptcy reform, interest rates and increased fees and grace periods continue to shrink, even if the credit card companies collected enormous benefits from declining bankruptcy losses demonstrates that the credit card market is not price- competitive. This lack of price competition explains why the benefits of bankruptcy reform accrued exclusively to credit institutions, credit cards and are not shared with the average American family, and why. . . bankruptcy reform has been unsuccessful.
Negative impact
Another effect of bankruptcy is increasing foreclosures and defaults by mortgage holders who can not afford to make payments for housing. tougher bankruptcy law, limiting financial compensation to be available under bankruptcy law, and the rising cost of bankruptcy filing, it appears that the increase in the number of people walk from their homes, their mortgages, and other financial obligations, without seeking bankruptcy court protection.
Under the new law, most individual filers are not eligible for Chapter 7 bankruptcy, which allows liquidation and the cancellation of most debts. On the contrary, would be forced to do under Chapter 13, which requires regular payments of at least part of their debt to creditors.
stringent requirements of new legislation may cause homeowners to “go” and let their homes go to completion, rather than trying to file for bankruptcy. Restrictions on the bankruptcy filing and subsequent increase in foreclosures puts downward pressure on prices in areas where many homes are in default or foreclosed.
One of the great lessons and irony associated with [new] bankruptcy law is that the new law, increasing the dollar value of assets subject to bankruptcy weakened many financial companies that have sought bankruptcy laws more stringent.
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