Is the bankruptcy law change under Bush backfiring?

The latest lesson for lenders from the housing crisis: Be careful what you wish for. Banks and other financial outfits spent eight years and $40 million lobbying for sweeping new bankruptcy rules that would limit their losses from deadbeat debtors.

But it turns out those changes, enacted in 2005, are forcing more troubled borrowers to walk away from their homes—even those who didn't take on risky mortgages in the first place. And that's bad news for lenders, which suffer financially every time they have to take a troubled property on their books.

A July paper by David Bernstein, a researcher at the U.S. Treasury, found that 800,000 fewer homeowners have filed for bankruptcy since the rules kicked in. A quarter of those people, says the report, have likely had to give up their homes as a result—boosting foreclosures nationwide at least 4%. " are directly responsible for the rising foreclosure rate," notes another report by investment bank Credit Suisse (CSR).


http://www.businessweek.com/magazine/content/08_38/b4100036858078.htm?chan=rss_topStories_ssi_5

Of course those financial institutions that pushed for the new law knew what was coming, they thought that forcing their customers to pay off the debt would protect their balance sheets.

I bet they were thinking the credit crisis would be triggered by credit card debts, not housing.

Jokes on them.