BAPCPA--More Unintended Consequences

The credit and banking industry spent a lot of money over the years to make the bankruptcy code consumer unfriendly.  The infamous amendments from 2005 (BAPCPA) made bankruptcy more expensive and difficult for all individual debtors, particularly middle class debtors.  By making bankruptcy more difficult and expensive, consumers would, theoretically, be forced to pay a higher percentage of their obligations thus helping the bottom line of the lenders.  From 1995, lenders continued an orgy of bad lending practices at every level of their businesses leading to the great collapse of 2008. 

Now that scholars have some data, it looks as though the lenders support of BAPCPA was as misguided as their lending practices. 

Mark Lieberman of Fox Business News reports today on a new study by Wenli Li of the Federal Reserve Bank of Philadelphia, Michelle J. White of the University of California at San Diego and Ning Zhu of the Graduate School of Management at the University of California, Davis that concluded. “Bankruptcy reform squeezed homeowners’ budgets by raising the cost of filing for bankruptcy and reducing the amount of debt discharged in bankruptcy. It therefore increased mortgage default by closing off a popular procedure that previously helped financially distressed homeowners save their homes.”  You can read Mr. Lieberman's piece here . 

While I'm not inclined to blame BAPCPA for the housing crisis, my anecdotal experience is that it certainly has not helped anyone avoide mortgage default or foreclosure and it distorts otherwise rational economic behavior.