Monday, February 13, 2012

Did changing of the bankruptcy laws help cause the financial meltdown?

In 2005 the Congress passed a new law reforming bankruptcy protections. While arguably some changes were needed, the sweeping changes enacted have made the process much more difficult for the average person, who is already going through a difficult time.
At the time the media widely reported (falsely) that bankruptcy would no longer be available, and the average person would have to pay all their debts back. Believing this media blitz, the average person in 2006 thought they could not file and overall filings were down 80%. These same people were then taking the money that they would have used to pay their mortgages and gave it to the credit cards instead. As a result their mortgages went into default, foreclosures increased, and the U.S slid into a recession.

            The public became aware that Bankruptcy protection was still available, and filings increased to record proportions in 2009 to 2011. Filings seem to be slowing down, but are still high.

            The questions still remain though. If Congress had not made the safety net of bankruptcy so difficult in 2005, would the resulting recession have been this bad?

            Bankruptcy protection is still available in Fresno. If you have further questions, contact the The Law Office of Timothy Springer in Fresno, California.

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