What do the election results mean for bankruptcy and foreclosure?

The reality of our political situation is that no matter what you think of any political party, the democrats are in general friendlier to debtors.  I am not a democrat or a liberal but I say this because it is just the way it is.

So if you are in debt the democrats will probably pass more laws that will help you (years ago Hillary Clinton put forth legislation to make student loans dischargeable in bankruptcy).  With the Republican takeover therefore there will probably not be as much relief  for debtors as there would be if democrats stayed in power.

For instance the writing down of mortgages to the value of the homes is being proposed by a democrat.  This is being sponsored by the democratic senator from Rhode Island and it will probably not happen now because the dems lost the house.  Neither will a foreclosure moratorium.  A halting to all foreclosures has been called for but it is unlikely top pass with republicans controlling the house of representatives.  Republicans are more likely to want to see the foreclosures happen.

But that does not mean that republicans are more in bed with big banks.  They just believe in personal responsibility and that if you can’t afford a mortgage then you should go out of your house.  For many of my clients this is my advice and I point out to them how it’s probably cheaper to rent than to make their high payments for an upside down house.  But for others I advise them to try to get a modification and stay in the home because they are attached to the home or they have made major improvements to it.

The republicans will be faced with the emergency of an increasing number of these foreclosures and they may be forced to take more drastic action than they would otherwise take due to seriousness of the problem.

Remember too that bankruptcy is still going to be always available and it is unlikely to change.  The law was majorly overhauled in 2005 and will probably be only tweaked now.  That 2005 bankruptcy law and the means test that it created is considered unfriendly to debtors.  If your income is too high then you are forced into a chapter 13.

Vice president Biden voted for that 2005 change to the bankruptcy law along with many other democrats so it was not just republicans who supported it.  But bankruptcy is still available and its often the most sensible solution for people who do not have too much income but they do have a lot of debts they cannot pay.

So there is unlikely to be a foreclosure freeze now or a mortgage write down but there may be some other relief coming for debtors if both parties can work together.

I am a bankruptcy lawyer in San Diego.  If you need more help please visit my website at www.farquharlaw.com.

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