The consumer bankruptcy laws of this country were revised just 4 short years ago in a sweeping bit of reform legislation under the Bush administration. The laws were championed by the credit card companies and other creditors as a way of guaranteeing they would not be left holding the bag of people who get trapped under bills.
When the laws were written originally in the late 1970s, the rules reflected the concerns of the banks who were worried about losing money on mortgages. While both of these institutions are valuable assets to the country, they do not necessarily have the interests of the general consumer at heart when worrying about their balance sheets.
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For this reason, the consumer bankruptcy laws should be revised. The idea that the consumer bankruptcy laws should reflect the needs and concerns of the consumers the laws are meant to protect and aid may seem extreme to some but it really isn't that eccentric.
The consumer bankruptcy laws were written to protect first the interests of the banks and then the interests of creditors everywhere. The interests of these groups are very different from those of the consumers. Consumers, quite frankly, do not really care if the bank's balance sheet until the entire system comes crashing down. As that has seemed to have just happened even with laws designed to protect the banks, it may be an ideal time to change things up a bit.
One of the biggest things that can change in the current bankruptcy laws are the provisions governing what a bankruptcy judge may or may not alter. As it stands right now, a bankruptcy judge can renegotiate the interest rates on a person's boat, investment properties, cars, recreational vehicles, and anything else the person may have a loan for. Unfortunately, the judge is unable to renegotiate the interest rates on a person's primary residence.
When the laws were originally written, there was one type of home mortgage: the fixed rate mortgage. These mortgages held no surprises in terms of interest rates and so provided a degree of security to the consumer. The consumer knew that he or she would pay 5% or some other interest rate for the entire life of the mortgage.
Now, with the designer mortgages and hybrids that exist, a person has no idea what the interest rate may be in the next year. This means that if the interest rate sky rockets on the person's home, he or she will be stuck with an expected increase but an amount that could not be anticipated.
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