I am seeing a lot more bankruptcies this quarter. The bankruptcy rate more than doubled before the 2005 changes, went down to half of the 2004 rate in 2006, and now appears headed back to 2004 rate. I'm seeing at least one new intake per day.
Mostly people with subprime zero-down-payment variable rate loans, negative equity, and the variable rate just locked at a rate they can't pay, and they can't refi because the refi money is drying up but isn't available for zero or negative equity anyway.
The stupidist thing I am seeing is people cashing out equity to pay off credit cards and car notes. Then when they're forced into bankruptcy they have zero debt but need to wipe out foreclosure deficiency. They also have cars that are too expensive to exempt under the mingy Virginia exemptions so they can't keep them anyway, and have to give up the credit cards, so what was the point?
Second stupidist thing I am seeing is people who don't know that the lenders are reporting "COD" (Cancellation Of Debt) as income on 1099s to the IRS, they're doing "short sales," "cash for keys" and deeds in lieu prior to bankruptcy, and can't believe it when I tell them that unless they're actually insolvent, they owe the tax. The IRS isn't bound by the bankruptcy exemptions, if you have exempted your assets (like ERISA plans) you're still solvent under IRS rules.
A lot of this going around now.
One thing about the Great Depression, if you had a job you were doing well. I think the same thing now, we've still got really low unemployment. The party may be over for now but Uncle Ben Bernanke isn't going to try to crush the economy like Hoover and the Fed did in 1929-1933.
Subprime zero-down-payment wasn't a business decision, it was a political decision dreamed up during the Clinton years. And some people were prudent, and prospered, while others were foolish, and will pay the price. |
